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2016 Annual report Volume II No. 10 - German Aerospace Centre will in future comply with the ban on more favourable treatment

The Economics Ministry promised that the German Aerospace Centre will in future comply with the ban on more favourable treatment.

German Aerospace Centre will in future comply with the ban on more favourable treatment

The Economics Ministry promised that the German Aerospace Centre will in future comply with the ban on more favourable treatment.

The Federal Government provides institutional funding of about €300 million annually to the German Aerospace Centre. These funds are allocated subject to the condition that the Centre does not grant its employees terms of employment more favourable than those enjoyed by comparable Federal Government Staff.

The Centre regularly organised excursions and team-building events for its employees, such as guided city tours, visits to museums and churches, golf trial courses or ship and boat excursions. The participants were not charged any costs. In several cases, the Centre also provided its employees with meals and drinks free of charge.

We objected to this practice since the German Aerospace Centre thus had not met the requirement subject to which the institutional funding was provided. The Centre offered its employees fringe benefits that comparable Federal Government employees do not receive. Other federal employees would have had to pay for such events.

The Ministry eventually promised that the Centre would no longer fund events of a touristic or recreational nature.

 

2016 Annual Report Volume II No. 07 - Reduced VAT rate – Urgent need to eliminate competitive disadvantages in contract research

Contract research has for years been taxed unevenly. While research institutions established under private law have to pay only the reduced rate of 7 per cent on their contract research turnover, institutions governed by public law have to pay the standard VAT rate of 19 per cent. We have repeatedly drawn attention to the resulting distortions of competition and have recommended the consistent application of the standard VAT rate.

Reduced VAT rate – Urgent need to eliminate competitive disadvantages in contract research

Contract research has for years been taxed unevenly. While research institutions established under private law have to pay only the reduced rate of 7 per cent on their contract research turnover, institutions governed by public law have to pay the standard VAT rate of 19 per cent. We have repeatedly drawn attention to the resulting distortions of competition and have recommended the consistent application of the standard VAT rate.

Apart from the state universities, there are more than 800 non-university research institutes in Germany. Most of these have been established under private law but some under public law. The state universities and the non-university research institutes secure external funding from third parties by doing research on behalf of external parties (contract research). In this field, they compete with each other.

Turnovers generated by contract research are subject to VAT. Research institutes established under private law may apply the reduced VAT rate of 7 per cent on such turnovers. In contrast, state universities and institutes governed by public law have to pay the standard VAT rate of 19 per cent.

In recent years, we have repeatedly drawn the attention of the Federal Ministry of Finance to the uneven tax treatment of contract research. Apart from the resulting distortions of competition, we also have held that this practice infringes European law. We therefore recommended that the Federal Ministry of Finance finally press for the uniform taxation of contract research with the standard VAT rate and adapt national law to the requirements of European Union law.

The Federal Ministry of Finance has continued to reject amending the provision granting the reduced VAT rate for contract research. The Ministry argued that such an amendment should only be made in connection with a comprehensive overhaul of the provisions granting the reduced VAT rate.

We assume that a comprehensive amendment of the provisions granting the reduced VAT rate cannot be expected in the foreseeable future. In that light, the abolition of the reduced VAT rate for contract research should not be postponed any longer. Only thus will it be possible to avoid tax discrimination and infringement proceedings before the European Court of Justice. The Federal Ministry of Finance should take the necessary steps to have VAT law amended as soon as possible.

 

2016 Annual Report Volume I No. 54 - €83 million of public funds for setting up a research institute without secure

Since 2009, the Federal Ministry of Education, Science, Research and Technology has supported the establishment and operation of an institute for advanced sustainability studies with project funds, co-financed by the state of Brandenburg where the institute is located. It intended to permanently place the institute on a sound financial footing and to transfer it to institutional funding. However, it failed to develop a strategic and financial plan at an early stage and to clarify a sound financial perspective with the state, the scientific organisations and the Federal Ministry of Finance.

€83 million of public funds for setting up a research institute without secure perspective

Since 2009, the Federal Ministry of Education, Science, Research and Technology has supported the establishment and operation of an institute for advanced sustainability studies with project funds, co-financed by the state of Brandenburg where the institute is located. It intended to permanently place the institute on a sound financial footing and to transfer it to institutional funding. However, it failed to develop a strategic and financial plan at an early stage and to clarify a sound financial perspective with the state, the scientific organisations and the Federal Ministry of Finance.

Since 2009, the Federal Ministry of Education, Science, Research and Technology has supported the “Institute for Advanced Sustainability Studies” (IASS) with project funds without clarifying real perspectives for a subsequent institutional funding. In 2014, the German Council of Science and Humanities did not consider the quality of research as satisfying and demanded a conceptual and organisational development. The Council recommended that the Institute be re-evaluated after five years and that project funding be continued for the time being. As a result, the Ministry decided that the current support be extended until year-end 2023. The Institute’s prospect of funding after that date remains open.

We hold that it is generally not reasonable to continue using project funding which seem to be institutionally financed longer than in a strictly limited initial stage. We criticized the lacking clear perspective for the Institute’s funding. The Ministry needs to clarify as soon as possible whether, with whom and under what conditions the Institute can be funded on a permanent basis.

 

2016 Annual Report Volume II No. 09 - Institutional funding of the German Aerospace Centre will in future be examined in depth

The Federal Ministry for Economic Affairs and Energy will in future examine in depth the documents proving the use of financial resources made available under institutional funding to the German Aerospace Centre.

Institutional funding of the German Aerospace Centre will in future be examined in depth

The Federal Ministry for Economic Affairs and Energy will in future examine in depth the documents proving the use of financial resources made available under institutional funding to the German Aerospace Centre.

The German Aerospace Centre is Germany’s national aeronautics and space research institution. Together with some of the German states, provides institutional funding to the Centre. To provide data on the proof of use, the Centre submitted its annual financial statements audited by a private-sector auditor and a reconciliation account. In a joint meeting, representatives of the Federal Economics Ministry and the respective ministries of the German states discussed the private-sector auditor’s report on the financial statements. An in-depth examination of how the Centre used the funds assigned to it was not carried out.

We noted that the Federal Economics Ministry had neither carried out an in-depth examination of the proof of use nor on-the-spot-checks at the Centre. However, to do so is always necessary in the case of institutional funding. To examine the proof of use, it is not sufficient to merely analyse and discuss the private-sector auditor’s report. We therefore demanded that the Federal Economics Ministry conduct an on-the-spot examination of the proof of use.

Since 2016, the Federal Economics Ministry has also conducted the on-the-spot checks we demanded. We will follow up on this at the appropriate time.

 

2014 Annual Report No. 62 - Development of departmental budget 30

Development of departmental budget 30

The Federal Ministry of Education and research has the task to promote education, science and research. In 2015, €15.3 billion have been appropriated for these purposes in the Ministry’s departmental budget 30, representing an 8.6 per cent increase over the previous year. This continues the trend of rising federal expenditure on research and development.

Departmental budget 30

Federal Ministry of Research and Development 2013

actual figures

2014

target figures

2015

draft budget

in € million

Departmen-tal expenditure

13,849.7

14,053.4

15,266.4

Departmen-tal revenue

127.5

89.4

89.4

Commitment authorisa-tions

4,309.1

4,682.8

5,482.7

(established) posts

Staff

876

932

914

 

The coalition agreement for the 18th legislative period called for the appropriation of €9 billion for priority measures in the fields of education and research. Up to the end of legislative period, an additional €7.4 billion are available under this departmental budget. These additional funds are to be used to increase the Federal Government’s contribution to educational and vocational training grants, to the funding of scientific and higher education institutions and to the implementation of the high technology strategy.

  • We had criticised the excessive general reduction in expenditure of €410.5 million in the 2014 budget. For 2015, the general reduction in expenditure is significantly higher at €478.4 million. In the course of budget execution, the Ministry itself will decide where the savings are to be made. With such a high general reduction in expenditure, the Legislature relinquishes to a questionable extent its control of spending, i.e. of determining expenditure priorities in this departmental budget.
  • 74 per cent of the budget funds appropriated for 2015 are already committed by virtue of long-term agreements with the states and of legislation. This leads a limited discretionary scope to the Ministry for initiating its own projects in the fields of education and research.
  • A large part of federal expenditure under this departmental budget is made available to the states with a view to financially supporting their tasks in the field of education. This objective is also pursued by a planned modification of a constitutional provision which is to allow the Federal Government to provide financial support to higher education institutions on a permanent basis. As a matter of principle, we have a critical view of joint financing by the Federal Government and the states, since these may result in an inefficient use of resources. In addition, there is the risk of increasing calls for federal funding even in matters that come under the core remit of the states. We therefore advocate an approach under which tasks are conferred to a single level of government and that level of government is given the necessary financial resources.
  • The Ministry provides funding of more than €5 billion to scientific institutions. The Federal Government and the states have committed themselves vis-à-vis big-science institutions to increase funding by 5 per cent annually. Since 2012, the Freedom of Science Act has allowed the institutions to use grant funds received much more flexibly. In our opinion, it is necessary to create more transparency concerning the impact of the flexible-use arrangements and spending increases in order to enable Parliament to exercise adequate control.

 

2014 Annual Report No. 33 – Doubts about the efficiency of the Federal Employment Agency’s University of Applied Labour Studies

The German SAI requested the Federal Employment Agency to increase its University’s efficiency. The German SAI expects the Agency to conduct an adequate efficiency appraisal on the operation of its University at two different locations and, on this basis, to decide whether to maintain the two locations.

Doubts about the efficiency of the Federal Employment Agency’s University of Applied Labour Studies

The German SAI requested the Federal Employment Agency to increase its University’s efficiency. The German SAI expects the Agency to conduct an adequate efficiency appraisal on the operation of its University at two different locations and, on this basis, to decide whether to maintain the two locations.

The Federal Employment Agency runs a University in Mannheim with a branch in Schwerin. Offering two bachelor programmes in labour market management and in employment-oriented guidance and case management, the University’s mission is to train part of the junior staff of the Agency.

In addition to junior staff training, the University plans to offer a master programme.

The University also performs research tasks. These are mainly carried out by the Institute for Employment Research, the Federal Employment Agency‘s research institute.

The German SAI found that the University’s organisation was inflated and its premises were too large. Operating two sites was a costly exercise. Compared to other universities maintained by the German states, the costs per student were therefore more than twice as high. Studies or justifications underpinning the need to introduce a master programme did not exist. Moreover, the Federal Employment Agency regularly failed to coordinate research between the University and the Institute for Employment Research.

The Federal Employment Agency only partly followed the German SAI’s recommendations. The Agency pledged to analyse and to streamline the University’s organisation. Furthermore, the Agency developed a strategy for introducing post-graduate studies. This strategy was used to show that the introduction of a master programme was necessary and essential to the Agency’s human resource development. In addition to that, the Federal Employment Agency pledged to better coordinate research between the University and the Institute for Employment Research.

The Federal Employment Agency performed a cost-benefit-analysis on the operation of the two sites. This analysis showed that running the University at only one site would reduce costs. However, the Agency intends to maintain both sites as it sees qualitative benefits in this arrangement, arguing that two sites were attractive for students coming from all German regions.

The German SAI is of the opinion that the University is not yet operating efficiently. The Federal Employment Agency is required to prove the need for operating the University at two sites. The German SAI requests the Agency to take the required steps.

 

2014 Annual Report No. 63 - Consistent grant monitoring in educational and research projects not yet ensured

There is still much scope for improvement where the monitoring of grants towards educational and research projects is concerned. We repeatedly issued recommendations to the Federal Ministry of Education and Research as to how internal processes could be enhanced and backlog of work could be cleared. We expect the Federal Ministry of Education and Research to assume its responsibility for ensuring an adequate use of grants and to address known weaknesses.

Consistent grant monitoring in educational and research projects not yet ensured

There is still much scope for improvement where the monitoring of grants towards educational and research projects is concerned. We repeatedly issued recommendations to the Federal Ministry of Education and Research as to how internal processes could be enhanced and backlog of work could be cleared. We expect the Federal Ministry of Education and Research to assume its responsibility for ensuring an adequate use of grants and to address known weaknesses.

Every year, the Federal Ministry of Education and Research awards grants of up to €6 billion towards educational and research projects. The recipients of such grants need to give proof of the regular and efficient use of the federal funds. Such (documentary) proof is to be examined by the Federal Ministry of Education and Research.

As we repeatedly criticised its grant monitoring procedures, the Federal Ministry of Education and Research had made a real effort in the past few years to implement improvements in this area. However, a recent audit showed that the quality and effectiveness of its monitoring are still insufficient. For example, this was true for the database driven monitoring of time limits and deadlines. When assessing projects from a technical point of view, obvious problems in project implementation were not adequately taken into account. As cases covered by our audit showed, the Federal Ministry of Education and Research did not try to recover payments or did so only reluctantly.

In our opinion, it is important that the Federal Ministry of Education and Research defines binding future milestones in an overall strategy in order to ensure systematic und consistent grant monitoring. To this end, it could particularly

  • start with enhancing the “profi”-database, in particular by automating processes, e.g. to obtain information about insolvencies prior to making any payment,
  • reducing backlogs of work swiftly, especially with regard to the pilot project on cost-based pro-rata grants towards projects,
  • revising the handbook on project funding with a view to creating an updated, comprehensive and user-friendly set of rules,
  • further developing a systematic and up-to-date IT-based overview of relevant ancillary provisions that can be used to continually improve the quality of grant-award notices and
  • intensifying measures to inform and to train employees of the responsible units of the Federal Ministry and the project sponsors and enhancing the effectiveness of internal controls in order to ensure strict grant monitoring and the enforcement of refund claims.

 

2013 Annual Report No. 69 - Federal Research Ministry closes gap in the control of grant funds handed out by the German Research Foundation

In response to our recommendation, the Federal Research Ministry obliged the German Research Foundation to better control federal grant funds. In future, the Foundation will conduct substantive tests on 5 per cent of all grants in which universities are given grants under the Initiative for Excellence. Moreover, the Foundation also intends to improve control in other funding areas and to close gaps in control.

Federal Research Ministry closes gap in the control of grant funds handed out by the German Research Foundation

In response to our recommendation, the Federal Research Ministry obliged the German Research Foundation to better control federal grant funds. In future, the Foundation will conduct substantive tests on 5 per cent of all grants in which universities are given grants under the Initiative for Excellence. Moreover, the Foundation also intends to improve control in other funding areas and to close gaps in control.

The German Research Foundation delivers the Initiative for Excellence to Promote Institutions of Higher Education, which is sponsored by both the Federal Government and the states. In this context, it channels federal budget funds of nearly €400 million annually to universities.

We found that the Foundation did not control the funds in line with the requirements of budgetary law. Specifically, it would have been the Foundation’s duty to carry out substantive tests on the basis of samples. Thus, the channelling of federal budget funds via the Foundation resulted in a gap in the control of the use of public funds. The Federal Research Ministry obliged the Foundation to improve the control of grant funds. Therefore, the Foundation will carry out substantive tests on 5 per cent of the grants awarded under the Initiative for Excellence. This will include audit work on universities’ premises. In response to our audit findings, the Foundation will moreover develop a framework for improving the control of funds in all of its funding areas and for closing gaps in control.

The Federal Research Ministry has taken up our recommendations. The steps now taken are appropriate means for guaranteeing adequate control of federal budget funds channelled by the Foundation to grantees. We shall monitor the progress made in practice in implementing the Foundation’s improvement framework.

 

2013 Annual Report No. 68 - Overhead funding for universities – limits of federal funding responsibility

The German Research Foundation grants overhead funding towards universities’ research programmes to co-finance there infrastructure. These overhead allowances are borne by the Federal Government alone, although the Foundation is jointly funded by the Federal Government and the state on a pro-rata basis. We have called upon the Federal Research Ministry to extend its overhead funding beyond 2015 only, if the states make an appropriate contribution. The Ministry should also substantiate the appropriateness of the overhead allowances.

Overhead funding for universities – limits of federal funding responsibility

The German Research Foundation grants overhead funding towards universities’ research programmes to co-finance there infrastructure. These overhead allowances are borne by the Federal Government alone, although the Foundation is jointly funded by the Federal Government and the state on a pro-rata basis. We have called upon the Federal Research Ministry to extend its overhead funding beyond 2015 only, if the states make an appropriate contribution. The Ministry should also substantiate the appropriateness of the overhead allowances.

The German Research Foundation gives grants towards universities by financing their personnel and material expenditure. Since 2007, they have additionally received overhead allowances of 20 per cent. Their purpose is to set off the burden on the infrastructure of universities.

We found that, in contrast to other grant-funding, overhead allowances are financed exclusively by the Federal Government. Neither during the negotiations for the Higher Education Pact up to 2010 nor in connection with its extension to its 2015 did the Federal Research Ministry succeed in securing a contribution from the states. Also, the Federal Ministry set the overhead allowance at 20 per cent without knowing whether the universities actually suffer this advantages which the Federal Government may compensate for at that level.

For the period beginning in 2016, the Federal Research Ministry intends to make an attempt to secure a contribution from the states. The Ministry claimed that it had obtained a declaration of intent according to which the states would accept their obligation to contribute and that there would be a study about the level of the overhead allowances which would look into their impact on the universities’ infrastructure.

In our opinion, the states’ declaration of intent is no clear funding commitment. We called upon the Federal Research Ministry to make any extension of the overhead allowances conditional upon a reasonable contribution by the states. We believe that, in the long term, it will not be in the best interest of the universities, if the states partially renege on their responsibility for the universities so that the latter become increasingly dependent on time-limited federal grants. To determine the appropriate level of the overhead allowances, we consider representative economic data necessary in order to identify the additional burden on infrastructure. We therefore demand that the study be aligned so as to generate appropriate results.

 

2013 Annual Report No. 67 - Development of departmental budget 30

Development of departmental budget 30

For FY 2014, funds of €14 billion have been budgeted for the Federal Ministry of Education and Research. While the overall budget is to be reduced by 2.2 per cent compared to 2013, expenditure under departmental budget 30 will increase by 1.6 per cent. Compared to 2011, the overall increase of the departmental budget will be 20.3 per cent.

Departmental budget 30 – Federal Ministry of Education and Research

 

 

 

2012

actual figures

 

2013

target figures

2014

1st draft budget

in € million

Departmental expenditure

12,968.8

13,740.4

13,964.7

Departmental revenue

127.0

111.7

89.4

Commitment authorisations

4,524.7

5,547.2

4,563.5

 

(established) posts

Staff

873

916

920

 

  • The draft budget is based on the assumption of a sharp increase in underspending to €410 million and, therefore, on the expectation that the Ministry will be able to realise savings in budget execution that are considerably higher than previously.
  • In the previous year, we pointed out that the reduction of expenditure in 2014 projected in the medium-term financial plan was little reasonable. Our assessment has been confirmed by the fact that total expenditure under departmental budget 30 is to be higher by €450 million in comparison to the earlier medium- term projection. Under the current medium-term financial plan, expenditure on research and development is also to decline in the next few years. We expect that this projection will not be realistic either.
  • The Ministry provides funding in excess to €4 billion to research institutions. These were strongly expanded in recent years and staff already totalled 90,000 in 2012. This large number of staff entails considerable future obligations for the Federal Government.
  • The 2014 budget calls for more than €6 billion of expenditures on research projects. For years, we have found deficiencies in the control of these grant funds. The Ministry needs to do more efforts to remedy these deficiencies. In our opinion, the steep increase in grant-funding under departmental budget 30 can only be justified, if the Ministry can ensure a sound management of these resources.
  • The Federal Government has committed itself to pay €715 million annually to the states up to 2019 as compensation for abolishing the joint tasks education planning and university construction. As from 2014, the Federal Government has not obliged the states to use the funds in the education sector. Nevertheless, the Federal Government would welcome it, if the states used the funds in the education sector. We endorse this request. Federal education and research budget may not be used to fund general expenditure of the states.
  • Since 2010, the Ministry has funded the Germany Scholarship programme. Due to the small number of beneficiaries of the programme, only slightly less than 60 per cent of the federal funds allocated in 2010-2012 went into payments to beneficiaries, while nearly 40 per cent where accounted for by programme delivery costs. In spite of the slow start, the medium-term financial plan projects programme expenditure in the total amount of €275 million in the years 2013-2017.

 

2013 Annual Report No. 14 - German Houses of Research and Innovation established by the Federal Foreign Office continue to run deficits

Over a period of five years, the Federal Foreign Office has not succeeded in running the German Houses of Research and Innovation so as to make them financially self-sufficient on the basis of own resources and third-party funding. Since 2009, the Federal Foreign Office established six such Houses abroad. Up to now, the Office has provided them with funds in the total amount of €10 million.

Over a period of five years, the Federal Foreign Office has not succeeded in running the German Houses of Research and Innovation so as to make them financially self-sufficient on the basis of own resources and third-party funding. Since 2009, the Federal Foreign Office established six such Houses abroad. Up to now, the Office has provided them with funds in the total amount of €10 million.

In the German Houses of Research and Innovation, German enterprises, research organisations and universities are to work under the same roof. They are to promote Germany as a centre for science, technology and innovation and support the international research work of the German science community and German enterprises. The Federal Foreign Office intended to provide start-up funding for a period of two years. After that, the Houses were to be financially self-sufficient by means of contributions from project partners. As from the beginning of the operating phase, the Foreign Office intended to fund individual projects only.

The Office failed to conclude a binding agreement with project partners about who was to bear the operating costs. Instead, it provided permanent funding in the amount of €2-3 million annually to cover the operating costs of the Houses. Since the start of the operating phase, this constitutes an inadmissible form of block grant, for which no funds were appropriated in the federal budget. Moreover, the Federal Foreign Office did not succeed in involving the business community in the activities and funding of the Houses.

We demanded that the Federal Foreign Office immediately limit the grant-funding of the German Houses of Research and Innovation to individual projects at each location and comply with the provisions of budgetary law. At the same time, the Office must ensure that project partners fund the full operating costs of the Houses from their own resources. Moreover, the office should step up its efforts to win more German enterprises as project partners.

If the Office is not able to meet these requirements in the future, it should discontinue financing the project from federal funds.

 

2012 Annual Report No. 76 - Leibniz Social Science Research Institute reorganised

Following our recommendation, the Federal Research Ministry reorganised the Leibniz Social Science Research Institute. It centralised the Institute’s work at two locations, abolishing the previous structure of 19 locations in four cities. Moreover, it corrected grave deficiencies in the Institute’s management.

Leibniz Social Science Research Institute reorganised

Following our recommendation, the Federal Research Ministry reorganised the Leibniz Social Science Research Institute. It centralised the Institute’s work at two locations, abolishing the previous structure of 19 locations in four cities. Moreover, it corrected grave deficiencies in the Institute’s management.

The Institute makes information about social science research accessible, archives and makes it available to the scientific community. The Ministry gives grants of €14 million annually to the Institute, thus covering 80 per cent of the latter’s expenditures. The remaining portion is funded by three German states.

We found that the Institute had premises at 19 locations in Bonn, Cologne, Mannheim and Berlin. The Institute was of the opinion that this fragmentation of premises did not provide a basis for successful scientific work. In 2008, the Federal Government and the three participating German states therefore approved a new location scheme which, however, called for maintaining locations in all three states. This solution was not cost-effective. The fragmentations of premises also affected the Institute’s management. This caused numerous deficiencies in financial management. For instance, staff members had access to cash and credit cards. There was no uniform recording of working hours and the Institute did not comply with public procurement rules. In addition, the Federal Government’s representation on the Institute’s supervisory body was not proportionate to its share of the funding.

Following our recommendation, the Federal Research Ministry improved the location scheme. The scheme now calls for two central locations in Cologne and Mannheim. The Bonn location has been abandoned and the Berlin premises are to be closed down by 2014. The Institute’s management has been centralised and reorganised in Mannheim. It is addressing the numerous deficiencies found. For instance, cash control is now in place and procurement rules are complied with. A central system for the recording of working hours has been implemented. The Ministry intends to strengthen its influence in the Institute’s governing body. It has proposed amending the Institute’s charter to increase its voting rights.

The Ministry has taken steps to fully improve the Institute’s management and working conditions. We expect the Ministry to exercise stronger control in future and to implement the new location scheme.

 

2012 Annual Report No. 75 - Funding of the Secretariat of the German Academy of Science and Engineering

The Federal Research Ministry gives grants to the Secretariat of the German Academy of Science and Engineering, although the Secretariat does not use the grant funds in a cost-effective and regular manner. We therefore recommend that the grant funding of the Secretariat be discontinued and that the federal grant funds be used exclusively for the Academy’s scientific projects.

Funding of the Secretariat of the German Academy of Science and Engineering

The Federal Research Ministry gives grants to the Secretariat of the German Academy of Science and Engineering, although the Secretariat does not use the grant funds in a cost-effective and regular manner. We therefore recommend that the grant funding of the Secretariat be discontinued and that the federal grant funds be used exclusively for the Academy’s scientific projects.

The Academy advises the general public and Government. The scientific work is carried out by members of the Academy and other cooperation partners, e.g. research institutions and universities. For this work, the Academy receives donations from the business community and federal grants specifically for projects. The Academy is managed by a Secretariat that receives grants of €1.25 million annually from the Federal Research Ministry.

In 2006, we had already found that the Secretariat did not use grant funds cost-effectively and adequately. Nevertheless, the Ministry included the Secretariat in a continuous support programme from 2008. A new audit carried out in 2011 again revealed grave deficiencies. For instance, the Secretariat occupies office premises in top locations in Munich and Berlin. With a staff of 35, it has two executives whose salaries are equivalent to those of leaders of large research institutions. In addition, the Secretariat funded accommodation and other services in top hotels, clearly exceeding the limits for institutions that receive support from public funds.

The Ministry refused to discontinue the block grants. It argued that the Secretariat cooperated closely with the business community from which it receives annual donations in the range of millions of euros. Therefore, the Secretariat would need a wide discretionary scope.

We acknowledge that the Secretariat provides an interface between the scientific and business communities and therefore faces special demands and expectations. However, this must not lead to non-compliance with requirements of budgetary law. We therefore recommend that the block grants to the Secretariat be discontinued. Where necessary, the Ministry could use the funds thus saved to support the Academy’s scientific work. The regular donations from the business community are sufficient to fund the Secretariat.

 

2012 Annual Report No. 74 - Development of departmental budget 30

Development of departmental budget 30

The Federal Ministry of Education and Research has the task of fostering research and the educational system. For 2013, spending on this task has been budgeted at €13.7 billion. Although the total budget is to be reduced by 3.4 per cent, expenditures under departmental budget 30 are to increase by 6.3 per cent. Compared to the year 2010, the total increase of departmental budget 30 would amount to 30.5 per cent.

Departmental budget 30 – Federal Ministry of Education and Research

 

2011
actual figures

2012
target figures

2013
draft budget

in € million

Departmental expenditure

11,612

12,941

13,752

Departmental revenue

173

126

111

Commitment authorisations

3,986

5,760

5,535

 

(established) posts

Staff

875

926

915

 

  • In 2013, departmental budget 30 is to exceed the amount originally established under the Federal Government’s medium-term financial plan by €333 million. To compensate for this, financial plan estimates for the years 2014, 2015 and 2016 have been reduced. In those years, the amounts spent on education and research are to be lower than in 2013. In recent years, appropriated funds under departmental budget 30 have increased steadily. In spite of the changing financial planning figures, we expect that expenditures from departmental budget 30 will continue to increase in the years 2014, 2015 and 2016.
  • The Ministry provides funding in excess to €4 billion to research institutions. The latter were strongly expanded in recent years. Compared to 2010, total staff of research institutions increased by 6.1 per cent within one year and already totalled more than 87,000 in 2011. This large number of staff entails considerable future obligations for the Federal Government.
  • The 2013 budget calls for more than €6 billion of expenditures on research projects. The major portion of the more than 18,000 research projects to be funded annually is managed by project-executing organisations. In response to our previous audit report, the Ministry for the first time completely and transparently disclosed the performance of project-executing organisations in its 2013 budget, which estimates the total funding provided to project-executing organisations at €166 million.
  • With the Initiative for Excellence and the Higher Education Pact, the Ministry has for several years fostered science, research and teaching at universities and other higher education institutions. The Federal Government thereby supports the German states in the discharge of one of their core functions, i.e. promote higher education. In 2013, this transfer of resources between levels of government within the German federal system already amounted to nearly 20 per cent of the Ministry’s expenditure budget.

 

2012 Annual Report No. 29 - Federal Employment Agency must discontinue the funding of professorships

The Federal Employment Agency funds professorships at various German universities staffed by personnel of the Agency’s Institute for Employment Research. This funding practice is incompatible with the division of responsibilities laid down in the German Constitution. Neither are these expenditures necessary to fulfil the research tasks of the Federal Employment Agency. We demanded that the funding of the professorships be discontinued. There are other ways to benefit from scientific cooperation with universities.

Federal Employment Agency must discontinue the funding of professorships

The Federal Employment Agency funds professorships at various German universities staffed by personnel of the Agency’s Institute for Employment Research. This funding practice is incompatible with the division of responsibilities laid down in the German Constitution. Neither are these expenditures necessary to fulfil the research tasks of the Federal Employment Agency. We demanded that the funding of the professorships be discontinued. There are other ways to benefit from scientific cooperation with universities.

Since 2008, the Federal Employment Agency has funded university professorships in various German states. All professorships are staffed by managers or other personnel of the Agency’s Institute for Employment Research.

We objected to the lack of a legal basis that would permit the Agency to fund professorships. According to the German Constitution, the Federal Government may fund scientific and research projects at universities only, if it concludes an agreement to this effect with all German states.

In addition, we objected to the Agency’s practice of funding professorships for staff of its own research institution from contribution revenues. The expenditures were unnecessary because existing cooperation arrangements with universities already permitted comprehensive scientific cooperation. Moreover, the requirements imposed and the strong influence exerted by the Agency with respect to the selection procedure show that its main motive is to promote its own staff.

The Agency should discontinue the funding of university professorships. There are other ways not implying an infringement of the Constitution by which the Agency can benefit from cooperation with academia.

 

2011 Annual Report No. 80 - Research institutions should act wisely when granting staff extra payments beyond collectively agreed remuneration

Research institutions have granted their staff considerable amounts of extra pay not provided for under collective agreements. The central regulations issued by the Federal Research Ministry on such extra pay are partly vague

Research institutions should act wisely when granting staff extra payments beyond collectively agreed remuneration

Research institutions have granted their staff considerable amounts of extra pay not provided for under collective agreements. The central regulations issued by the Federal Research Ministry on such extra pay are partly vague.

Research institutions may grant their staff extra pay not provided for under collective agreements in the form of allowances and bonuses. In order to be able to recruit qualified scientific staff especially from the private sector and from abroad, research institutions may grant extra pay. To ensure the retention of such staff, incentive payments may also be made. In this context, the Federal Research Ministry has developed “Principles for extra pay”.

The research centres made intensive use of extra pay arrangements although the requirements were not met in each case. Two departmental research institutions of the Federal Economic Ministry granted extra pay under the same arrangements without having duly checked and documented the justifications according to the requirements.

We criticised that the ambiguity of some requirements and the larger budget facilitate negligence in the management of public budget funds by research institutions. We perceive the risk that some institutions consider extra pay as a permanent additional salary component. We therefore believe that restrictions should be imposed for the extra pay. A time limit and a ceiling should apply to extra pay.

Recruitment and retention allowances should help the institutions to be able to recruit and retain staff in competition with private sector businesses or foreign entities. We hold that the research institutions should exercise self-restraint and care in using the tool of extra pay beyond the collectively agreed remunerations. To improve the control of such extra remunerations, the research institutions should base all decisions to grant extra pay on sound reasons and appropriate documentation.

 

2011 Annual Report No. 79 - Better arrangements for research grants to businesses

As a result of our recommendation, the Federal Research Ministry intends to revise the rules for the concession of grant funds towards research projects of businesses. This significantly simplifies procedures for businesses and for administrators of grant funds. In addition, an adequate determination of standard grant rates is to avoid free rider effects.

Better arrangements for research grants to businesses

As a result of our recommendation, the Federal Research Ministry intends to revise the rules for the concession of grant funds towards research projects of businesses. This significantly simplifies procedures for businesses and for administrators of grant funds. In addition, an adequate determination of standard grant rates is to avoid free rider effects.

The Federal Research Ministry provides financial assistance for research and development projects of businesses. To this end, it gives grants of €350 million annually. The amounts of grants are determined as standard portions of project costs. Firstly, the businesses apply for grants on the basis of the costs which they can directly allocate to the project in their accounting system. This covers the project costs of material and personnel. Secondly, businesses are reimbursed at a standard overhead rate for costs that they cannot directly allocate to the project, e.g. administrative costs. For more than 20 years, this standard rate has been 120 per cent of the project’s personnel costs.

We found that the calculation of grant amounts under this standard overhead rate cannot be directly based on the personnel costs stated in the businesses’ accounting systems. Rather than that, the grant-funding regulations provide for additional calculation rules and correction factors. These are to limit the amounts of the grants based on the standard overhead rate and to prevent unjustified free rider effects. However, our sample audits and comparative calculations showed that the 120 per cent overhead rate usually results in grant amounts that considerably exceed the amounts of cost actually incurred by the businesses.

We criticised that the standard overhead rate does neither simplify the procedure of grant-funding based on costs nor prevent free rider effects. In response to our recommendation, the Federal Research Ministry has revised the grant-funding regulations. It intends to strongly simplify the calculation of the grant amounts payable under the standard overhead rate. In return, it intends to significantly reduce the standard overhead rate.

In our view, the example of grant-funding on the basis of costs incurred by the beneficiaries illustrates the fact that grant-funding regulations may not remain unchanged for decades but should be regularly reviewed. The input of resources needed to conduct these reviews is justified in light of the large grant-funding volume in the field of research promotion and the significance of effective procedures for all parties involved.

 

2011 Annual Report No. 78 - German-Polish Science Foundation is given sustainable basis

In response to our recommendation, the Federal Research Ministry structured the work of the German-Polish Science (and Humanities) Foundation. In future, the endowment capital will be managed by the Donors' Association for the Promotion of Sciences and Humanities in Germany. The Federal Research Ministry expects that a first €1 million tranche of the Polish donation towards the endowment capital will be received still in 2011

German-Polish Science Foundation is given sustainable basis

In response to our recommendation, the Federal Research Ministry structured the work of the German-Polish Science (and Humanities) Foundation. In future, the endowment capital will be managed by the Donors' Association for the Promotion of Sciences and Humanities in Germany. The Federal Research Ministry expects that a first €1 million tranche of the Polish donation towards the endowment capital will be received still in 2011.

In 2005, Germany and Poland decided to establish the German-Polish Science (and Humanities) Foundation to promote cooperation with respect to research and higher education. It is to support scientific projects in both countries and to grant scholarships. Germany intended to provide funds of €50 million and Poland €5 million.

We advised the Federal Research Ministry during the Foundation’s establishment phase. We pointed out that giving grants to individual projects directly was more efficient than to establish a new institution. We argued that, apart from the high commitment of capital, a foundation caused high administrative expenditure. We further recommended that the establishment of the Foundation be made conditional upon commitments as to the joint funding that would be valid in international law. The Federal Research Ministry did not take up our recommendations. It established the Foundation in 2006 and endowed it with a capital of €50 million.

 

2011 Annual Report No. 77 - Helmholtz Association: failure to ensure effective use of research funds

Funds granted by the Federal Ministry of Education and Research to the Helmholtz Association of German Research Centres are projected to nearly double within the next ten years to reach an estimated annual amount of some €3 billion in FY 2015. Although the effective use of funds is not ensured, the Ministry refused to evaluate the funding procedure before the beginning of the new programming period

Helmholtz Association: failure to ensure effective use of research funds

Funds granted by the Federal Ministry of Education and Research to the Helmholtz Association of German Research Centres are projected to nearly double within the next ten years to reach an estimated annual amount of some €3 billion in FY 2015. Although the effective use of funds is not ensured, the Ministry refused to evaluate the funding procedure before the beginning of the new programming period.

A 90 per cent share of current expenditure incurred by the Helmholtz Association, Germany’s largest scientific organisation, is borne by the Federal Government, which additionally funds individual research projects. The Federal Ministry of Education and Research has continuously increased the funding volume over the last few years. The effective use of funds is to be ensured by means of a competitive procedure in which the most promising initiatives are selected to receive programme-specific subsidies. For this purpose, research programmes proposed by the Association are assessed by international panels of experts.

As early as in 2005, we pointed out that the competitive procedure had significant deficiencies and that programmes were insufficiently monitored. Nevertheless, the Ministry only introduced some minor procedural changes.

In 2011, we found once more that there was practically no competition. According to experts, all 30 programmes suggested by the Association were of excellent quality and major strategic importance. Funding allocated to the programmes was even higher than originally requested. The considerable increase in research funds literally stifled any kind of competition. At the end of FY 2010, the Association carried forward unexpended balances in the amount of €315 million to the following financial year. Moreover, the Ministry’s controlling function still failed to ensure that programmes were actually implemented in accordance with pre-defined requirements.

The Ministry explained that experts’ exclusively positive assessments were no sign of lacking competition, but might be attributed to the fact that all suggested research programmes went through an internal pre-selection and strategic coordination process before they were submitted to the panels. While the Ministry pledged to optimise programme controlling by introducing a more comprehensive reporting system, it rejected our advice to evaluate the entire funding procedure before the beginning of the new programming period in 2014, stating that an evaluation of this kind would not be feasible before the next parliamentary term.

We uphold our demand that the Ministry should evaluate programme-oriented funding prior to the next programming period. In terms of efficiency, it is hard to justify that, according to the latest figures, 180 leading scientists from all over the world are asked to provide expert opinions on research projects while the key decisions have already been taken internally. We demanded that the effectiveness of controlling mechanisms be evaluated. Furthermore, we recommended that the Ministry align its organisational structure to the programme-oriented funding arrangements.

We audited the grants to the Foundation in 2010. Among other findings, we found that the capital was invested so that, for a time, only minimum interest income was generated for the Foundation’s purpose. In spite of large administrative expenditure, the Foundation’s accounting system and disbursement procedures did not comply with the principles of proper accounting. Due to insufficient transparency and inadequate expenditure planning, the Foundation’s supervisory body has been unable to adopt its budget since 2009. The Polish contribution to the endowment capital was still outstanding after four years and the negotiations about it had come to a standstill.

At our recommendation, the Federal Research Ministry intends to improve the Foundation’s work. The endowment capital is now managed by the Donors' Association for the Promotion of Sciences and Humanities. The Foundation will in future be obliged to plan its expenditure on the basis of the previous year’s revenues. In June 2011, the Federal Research Ministry has finally succeeded in concluding an intergovernmental agreement about the Polish contribution. It expects the first €1 million tranche will be received still in 2011.

 

2011 Annual Report No. 76 - Development of departmental budget 30

Development of departmental budget 30

The Federal Ministry of Education and Research is in charge of supporting research activities as well as the educational sector. Departmental expenditure amounted to €10.6 billion in FY 2010 and is estimated to increase by 21 per cent in 2012.

Departmental budget 30 – Federal Ministry of Education and Research

 

2010

Actual figure

2011

Target figure

2012

Draft budget

 

in € million

Departmental expenditure

10,555

11,646

12,804

 

Departmental revenue

185

118

126

 

Commitment authorisations

3,074

6,442

5,760

 

 

(established) posts

 

Staff (department only)

928

914

938

 

 

  • 40 per cent of the resources assigned to departmental budget 30 are used to fund research institutions, the development of which has been actively encouraged over the last few years, their staff totalling more than 82,000 in 2010. The Federal Government and the constituent states provide for an annual 5 per cent increase in allocations until FY 2015.
  • The Ministry has granted research institutions exemptions from rules applicable to other recipients of public funds. In addition, there are plans to give institutions more room for independent decisions in the fields of remuneration, building projects and shareholdings in order to ensure academic freedom. Our experience has shown that this kind of relaxation of rules is not recommendable. In particular, the rights of the Ministry and the parliamentary Appropriations Committee to be involved in relevant budgetary decisions should not be curtailed.
  • Under the 2012 draft budget, expenditure of over €5 billion is estimated for the support of research projects, i.e. 29 per cent more than in FY 2010. The majority of the 18,000 projects subsidised each year is coordinated by project management organisations, which, as of 2011, employed more staff than the Ministry. Following a recommendation we issued in 2009, the Ministry has made efforts to improve the control of project subsidies.
  • The Ministry also supports research projects conducted at universities. Since the beginning of 2011, support has been provided in the form of a lump-sum subsidy amounting to 10 per cent of the project costs, which will be increased to 20 per cent as from 2012. This lump sum is also automatically granted for projects under way. In our view, this means that the Federal Government is, once more, at least indirectly involved in funding higher education infrastructure, a task which has been incumbent on the constituent states alone since the reform of the federal system. The guiding principle of this reform was to clearly distinguish between the fiscal responsibilities of the Federal Government and those of the constituent states.

 

2010 Annual Report No. 28 - Inadequate research performance of a medical defence institute

The research performance of the Armed Forces’ medical institute for occupational and environmental safety is inadequate. In the seven years since its establishment, the institute has cost €11 million. The Federal Ministry of Defence should review if the institute is really needed any longer.

Inadequate research performance of a medical defence institute

The research performance of the Armed Forces’ medical institute for occupational and environmental safety is inadequate. In the seven years since its establishment, the institute has cost €11 million. The Federal Ministry of Defence should review if the institute is really needed any longer.

The Armed Forces’ medical institute for occupational and environmental safety located in Berlin has to carry out applied research in the fields of military occupational and environmental safety and environmental hygiene. We found that the institute had completed only ten research projects since its establishment in 2003. Most of the senior medical officers that worked in the institute did not have any research background and did not have the scientific qualification necessary for performing research tasks at the institute. In part, tasks were assigned to them which were not compatible with the job descriptions of their posts and did not engage their full working capacity. One research department had not planned any research projects for 2009. The department of experimental bioanalytics of electromagnetic waves and fields did not have any expert staff. Therefore, the institute was able to do scientific work in this field only with the support of third parties. The Science Council criticised the institute, pointing out that the quality of its research performance does not consistently meet scientific standards.

Following our recommendation, the Federal Ministry of Defence reassigned the tasks of one department of the institute to the Berlin Armed Forces Hospital. In view of the concurring criticism of the German SAI and the Science Council, the Federal Ministry of Defence should without delay consider transferring the institute’s remaining department to other medical research institutions of the German Armed Forces.

2009 Annual Report No. 38 - Tax discrimination of contract research carried out by state universities

We suggested that the general VAT rate be uniformly applied to contract research carried out by state universities and by research institutions established under private law. At present, the reduced VAT rate of 7 per cent applies to research institutions established under private law, while the general VAT rate of 19 per cent applies to state universities.

Tax discrimination of contract research carried out by state universities

We suggested that the general VAT rate be uniformly applied to contract research carried out by state universities and by research institutions established under private law. At present, the reduced VAT rate of 7 per cent applies to research institutions established under private law, while the general VAT rate of 19 per cent applies to state universities.

The different taxation of contract research places state universities at a disadvantage in the competition for research contracts. Furthermore, European Community law provides for the application of the general VAT rate to research work.

We recommend that the Federal Ministry of Finance press for the uniform application of the general VAT rate to research services and initiate the necessary legislative amendments. As long as the tax advantage of research institutions established under private law over the state universities remains in force, its impact on the competition for research contracts should be studied. The results should be included in the Federal Government’s subsidy report.

 

2009 Annual Report No. 34 - Grant funds of more than €1 billion were monitored inadequately

The Federal Research Ministry has in many cases failed for years to verify the use of grant funds in compliance with the applicable provisions. There is a verification backlog in a number of cases involving a total amount in excess of €1 billion.

Grant funds of more than €1 billion were monitored inadequately

The Federal Research Ministry has in many cases failed for years to verify the use of grant funds in compliance with the applicable provisions. There is a verification backlog in a number of cases involving a total amount in excess of €1 billion.

The Federal Research Ministry gives grants towards several thousand projects each year. Grant recipients need to prove that they have used the grant funds in accordance with the specified purposes. To do so, they have to submit a final report and a statement of cash flows. It is up to the Ministry to verify these data and, depending on the result of such audit, to demand a refund of grants.

For a number of years, the Ministry frequently tolerated that grant recipients submitted data on the grant use after the scheduled date. Moreover, it failed in many cases to verify submitted data in compliance with the applicable provisions. Ministry staff do not make consistent use of an IT system implemented years ago to assist with the verification of those data. Verification backlogs involve the risk that new grant funds are awarded to recipients who previously managed funds inappropriately or performed poorly in implementing technical aspects of past projects.

The Ministry argued that deficiencies existed only in a small number of areas and organisational units. It pointed out that it had made efforts for years to strengthen supervision and supervisory control within the Ministry, arguing further that a strategy had been developed for improving reporting within the Ministry. Furthermore, efforts were being made to make better use of the IT system for monitoring work processes.

We demanded that the substantial part of the backlog be cleared by year-end 2010. Final responsibility for this lies with the Directors-General. Therefore, we recommend that the Ministry conclude performance contracts with the Directors-General concerned in order to clear backlogs on a timely basis. Furthermore, the Ministry should without delay eliminate the technical deficiencies of the control system. It should make an automated check of the use made of grants obligatory on or before 1 July 2010.

 

2007 Annual Report No. 45 - A service provider for universities received grants although the legal bases for grant-funding did no longer exist

The Federal Ministry of Education and Research failed to take regard to an amendment of the German Constitution enacted in 2006, which had transferred responsibilities in the field of universities to Germany’s constituent states. The Ministry continues to provide grants to an institution that supports universities in the performance of their mission. However, giving grants for such purposes has now become the sole constitutional responsibility of Germany’s constituent states.

A service provider for universities received grants although the legal bases for grant-funding did no longer exist

The Federal Ministry of Education and Research failed to take regard to an amendment of the German Constitution enacted in 2006, which had transferred responsibilities in the field of universities to Germany’s constituent states. The Ministry continues to provide grants to an institution that supports universities in the performance of their mission. However, giving grants for such purposes has now become the sole constitutional responsibility of Germany’s constituent states.

Since 1976, the Federal Government and the states provided grants to a non-profit organisation. These grants were designed to finance the discharge of the functions specified in the Society’s charter and take the form of block grants. The Federal Government provides about €3 million each year for this purpose. In addition, it provides grants to promote individual projects.

According to its charter, the object of the non-profit organisation is to support universities and the responsible administration in their efforts to ensure an efficient and effective performance of the universities mission. The Ministry justified the block grants with its information need in connection with general planning for higher education and for cooperation with Germany’s constituent states in connection with the joint tasks of University Construction and Educational Planning.

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