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Federal budget grants

2018 Annual report No. 29 – Covert funding granted to an international school in Bonn

Executive summary

The Federal Ministry of Economic Cooperation and Development granted funds worth €3.75 million for expanding a private international school in Bonn without sufficient legal authority. The funds were channelled via an international organisation. That organisation received the federal funds from the Ministry and directly passed them on to the school. We expressed concern about this grant as being inadmissible under budgetary law and doubtful in terms of constitutional law because educational matters come within the remit of the federal states. In our opinion, the Ministry chose this financing procedure to mask this fact. We demanded that the Ministry prevent covert financing practices.

 

2018 Annual report No. 14 – Hundreds of millions of euros in excess remunerations paid to KfW development bank for low carbon retrofitting of housing stock

Executive summary

The Federal Ministry for Economics failed to conduct an economic feasibility study of the tools designed to foster low carbon retrofitting of housing stock and energy efficiency. This federal programme is to support the improvement of energy efficiency of residential and commercial real estate and public office space with grants of more than €1 billion annually. The programme is implemented and managed by the KfW (government-owned development bank). KfW awards grants for such purposes as repayment of loans, capital expenditure and lending via commercial banks with interest rates below the market rate. Any related default risks are borne by the banks. Although KfW neither bears the costs of acquiring customers nor any risks, it received total amounts of €130 million and €140 million in 2016 and 2017 respectively for running the programme. In each of these years, remuneration accounted for more than 10 per cent of actual programme expenditure.

In our opinion, there is no proof that the various grant tools provide good value for money. However, putting the support funds to best use for the purposes of such support needs to be the primary goal. Any funds taken from the support programme to be paid to KfW are no longer available for the original programme purpose. We recommend that apart from streamlining the cumbersome lending procedure, the body responsible would be well advised to offer higher levels of grants or benefits and thus achieve better value for money. The grants could also be awarded by other entities such as, e.g. the Federal Office for Economic Affairs and Export Control.

 

2018 Annual report No. 04 – Urgent need for Federal Foreign Office to enhance grant-awarding practices

Executive summary

The Federal Foreign Office has for years awarded an increasing amount of grants. Since 2006, grant funding has risen by 480 per cent from €500 million to €2.9 billion. Since 2006, budget funds appropriated for humanitarian aid and crisis prevention have increased from €70 million to nearly €1.8 billion, i.e. by more than 2,500 per cent. The legal provisions governing the awarding of such grants are rather complex. The Federal Foreign Office has partially delegated grant processing to the Federal Administrative Office. The delegation of authority poses a number of difficulties. However, performance of those grant processing tasks retained by the Federal Foreign Office have also been characterised by major shortcomings for a number of years. The Federal Foreign Office is unable to meet the increasing requirements placed upon efficient and proper grant awarding. For instance, the Federal Foreign Office

  • has no clear rules in place for the delegation of authority. This is especially true for sharing grant-processing tasks with the Federal Administrative Office.
  • has no full overview of all grants funded from its departmental budget;
  • is not aware of the status of grant processing;
  • has neither adequately verified proof of proper use of funds totalling €2.46 billion itself nor arranged for an adequate review by others.


The Federal Foreign Office is therefore unable to ensure that the funds are used for the designated purpose or have the desired impact. The Federal Foreign Office needs to cease performing the non-ministerial grant-processing function. The Office is to ensure both an adequate ministerial governance of grants and efficient and proper processing of these funds.

 

2017 Annual report No. 22 - Excess grants paid due to major shortcomings in allocating funds to a beneficiary

The Federal Ministry for Family Affairs, Senior Citizens, Women and Youth granted excessive lump sums to a beneficiary for a project. That way, the beneficiary was able to build up inadmissible reserves totalling several millions of euros. Furthermore, the beneficiary did not comply with public procurement law by awarding a service contract for “project controlling” without public invitation to tender. The Ministry did not step in to stop the beneficiary from doing so.

The Federal Ministry for Family Affairs, Senior Citizens, Women and Youth granted more than €12 million to an educational institution in the legal form of an association for a multi-year project aimed at providing advanced training to 4,000 professionals from 2011 to 2015. The training was fully grant-funded and at the same time the association received lump sums per participant day for the training offered. However, the applicable funding rules only permit partial funding and a significantly lower lump sum. The excessive lump sums enabled the association to build up inadmissible reserves of more than €2 million. The reserves were not identified until our audit since the relevant authority did not check the proofs of use funds submitted by the association to ascertain whether the amount of the lump sums was appropriate.

Even though the Ministry demanded the recovery of funds, it waived half of the interest amounting to €80,000. However, such a waiver of the Federal Government may only be used as a “last resort” if interests cannot be deferred or paid in instalments.

The association with its office in northern Germany awarded the service contract for “project controlling” to one of its honorary members of the executive board who lives in the Bonn area. The association did not comply with funding conditions by choosing not to call for public tenders. During the project term, this resulted in expenditure totalling €575,000 for fees and additional significant travel costs. The Ministry did not detect this non-compliance until the end of project run even though this resulted in a major benefit for the honorary member of the association’s executive board. Furthermore, we doubted that the service contract was necessary. In a second, current project part the association managed without a full-time controlling expert on a fee basis even though the number of professionals to receive advanced training now is twice the earlier number.

We requested that the Ministry comply with the funding conditions and lump sums stipulated in its funding rules. If the Ministry charges interests payments, it needs to comply with the budgetary provisions. Furthermore, the Ministry needs to ensure that the beneficiaries comply with public procurement requirements.

 

2017 Annual report No. 23 - Funding of research institutions – Federal Ministry must review the audit of the use of funds

Each year, the Federal Ministry of Education and Research gives grants in the total amount of €4 billion to non-university research institutions. Although the Ministry must obtain assurance about the expedient and efficient use of these funds, it largely relies on private-sector auditors. The Ministry usually accepts the opinions expressed in general terms by these auditors and makes too little use of its own staff for obtaining a full picture of the use of the funds. For instance, it largely waives field work on the premises of the grant recipients.

We noted with concern that the Ministry does not adequately comply with its obligation to review the use of funds adequately and in line with applicable regulations. The duty to review the use of grant funds is incumbent on the grantor and may not be replaced by a review carried out by third parties. Only the grantor is able to assess, on the basis of its requirements and goals, whether the grant funds have been used in accordance with the specified purposes and in a way providing good value for money.

The Ministry did not agree to our findings, arguing that it did not at all shift the review of the use of funds to third parties but used the private-sector auditors to obtain additional indicators as basis for its own work. It did by no means adopt the private-sector auditors’ findings but carried out a review of its own. The Ministry admitted that it might not have adequately documented its work. It intends to better meet its documentation duty in the future.

We are not convinced by the Ministry’s statements. We urged the Ministry to carry out its own responsible and transparent assessment of the use of grant funds given to the research institutions. In future, the Ministry should

  • no longer automatically adopt the findings developed by the private-sector auditors;
  • carry out its own audit work to the extent necessary, focusing on high-risk issues and using all available information for its assessment;
  • carry out field work and ensure adequate review quality and
  • document the findings in a comprehensive and meaningful way.

 

2017 Report – Compliance by the Federal Ministry for Economic Affairs and Energy with requirements of the Financial Assistance Policy to limit grants to specified periods with declining amounts of funding

0 Summary
We audited compliance of the Federal Ministry for Economic Affairs and Energy with the Federal Government’s Financial Assistance Policy and the General Administrative Regulations on the Federal Budget Code. Such financial regulations require that financial assistance shall be phased out after specified periods with declining amounts of funding. Based on our audit findings and the comments made by the Ministry, we have developed the following conclusions:

0.1
Financial assistance shall be granted for limited periods only. The Ministry circumvents the limitation requirement. The Ministry repeatedly extended the validity of the funding guidelines subject to which financial assistance was granted. By doing so, the Ministry has granted financial assistance under various programmes for more than 40 years. Since 2003, total expenditure of €55 billion has been incurred under these programmes.

We have requested the Ministry to comply with the requirement to limit the periods for which financial assistance is granted. The Ministry should specify the cases in which exceptions are admissible and document the reasons for such exceptions.

0.2
As a rule, the Ministry’s funding guidelines specified periods of between three and five years. The Ministry was unable to convincingly explain the criteria used in limiting the funding periods. The approach appeared schematic and was not reasonable.

We recommended that the funding periods stipulated in funding guidelines be set with reference to the goal of the funding, its purpose and the expected target achievement. The Ministry should transparently document its decisions prior to the launch of each funding scheme.

0.3
As a matter of principle, financial assistance should be granted in amounts declining over time. In most cases, the Ministry did not do so, thereby establishing the exception from the principle as a general rule.

We expect the Ministry to derogate from the limitation requirement only in exceptional cases where this is justified. It should stipulate rules for permitting exceptions. The reasons for such exceptions shall be documented prior to launching any funding scheme.

0.4
The disclosure in the Subsidy Report of the limitation periods and the reduction of grants over time was not transparent. This hampers parliamentary oversight and the verification of compliance with the Financial Assistance Policy.

We expect the Ministry to transparently and accurately disclose the information about time limits and the gradual phasing out of its financial assistance in the Subsidy Report.

0.5
Comments by the Federal Economic Affairs Ministry:
The Ministry announced its intention to have its respective directorates explore how they can be implemented. Concerning its funding practices, the Ministry made reference to a report on the reform of the overall structure of financial assistance submitted to the Budget Committee of the German Parliament in 2015 (Committee document 1863). In that report, the Ministry outlined various approaches aimed at restructuring its financial assistance schemes. These included the specification of key issue areas and funding priorities within them. In addition, the report stated that the Ministry had implemented a financial assistance controlling system and set up a coordination group consisting of senior representatives of its respective directorates. That group’s work was to provide the basis for decisions at top executive level about which projects were to be terminated, reduced in scale or duration, expanded or newly launched. The Ministry claimed that these measures and a new strategic process in the procedure for drafting the budget estimates had already been reflected in various decisions of the Ministry. The Ministry argued that, for the sake of clarity, no separate data sheets should be used to disclose each of its funding measures.

0.6
Overall assessment:
The steps taken by the Federal Economic Affairs Ministry may be steps towards greater transparency of its funding activities and greater uniformity of the processes within the Ministry. Nevertheless, they do not prove that the Ministry complies with the requirements of the Financial Assistance Policy. There is no evidence that the structural and organisational reforms have had any impact on the fixing of limitation periods for and/or the gradual reduction of financial assistance. Those decisions which, according to the Ministry, have already been reflected in measures to reform the structure of financial assistance have always concerned the extension of grant programmes. Also, the reform of the structure of financial assistance did not aim at facilitating better compliance with the requirements of the Financial Assistance Policy. Instead, the aim was “to adapt the historically grown structure of the financial assistance programmes to current economic priorities.” This obviously even impeded the justified reduction of financial assistance schemes.

Our audit findings reveal a considerable discrepancy between the requirements of the Financial Assistance Policy and their implementation in the Ministry’s funding programmes. The effects intended by the requirements for limiting funding periods and reducing the volume of funding over time have not been achieved. We therefore uphold our recommendations. We request the Ministry Economic Affairs Ministry to close the gap between the requirements of the Financial Assistance Policy and its implementation in the various funding programmes and to comply with the Policy’s requirements in the future.

 

2016 Annual report Volume II No. 15 - Federal Railway Authority obtains refunds of €1.4 million

The Federal Railway Authority has enforced the repayment of grant funds amounting to €1.4 million that had been received by railway infrastructure companies although they did not have a good claim to these grant funds. The companies had invoiced the Federal Government construction costs and supplementary contract costs which they themselves or third parties would have had to bear. We had alerted the Federal Railway Authority to these faulty invoices.

The Federal Government reimburses to the railway infrastructure companies eligible construction costs for the building and upgrading of federally-owned railway lines. The railway infrastructure companies call the federal funds directly from the account of the Federal Cash Office. The Federal Railway Office defines the work and services eligible for grant-funding and demands that the companies use the federal funds according to the specified purposes and so as to obtain good value for money. If the Authority detects infringements of these requirements as a result of sample checks, the companies have to refund the grants plus interest to the authority.

We audited two projects not included in the sample. We found that the companies infringed the provisions laid down in the Handbook. They had called federal funds for costs that were not eligible for reimbursement or that should have been financed by third parties. The Authority acknowledged our audit findings and the companies have repaid €1.4 million to the Federal Government. The Authority is considering further refund claims in the range of millions of euros.

 

2016 Annual report Volume II No. 14 - Federal Railway Authority and Deutsche Bahn now comply with the prescribed retention periods for contract and invoicing documents

In response to our recommendation, the Federal Railway Authority has made it clear that grantees have to retain invoices and contracts for construction expenditure for the periods prescribed by public funding law. This is to forestall the risk that grantees destroy records prematurely.

The Federal Government gives grants in the magnitude of billions of euros towards the renewal of railway lines, stations and the power supply for railways. The Federal Railway Authority discharges functions as grant-awarding authority.

Grantees must prove that they have used the grant funds in accordance with the specified purpose and the good value for money requirement. To do so they have to submit documents proving the use of grant funds to the grant-awarding authority. This already applies during the construction phase (interim proof of use) and also after completion of the construction work (final proof of use). We also need to have access to the proofs of use.

The documents proving the use of funds comprise back-up documents on the awarding of contracts or invoices. The grantees have to retain these documents for five years. The retention period begins after submission by them of the final proof of use.

In the case of one project, no back-up documents were available for our audit because, allegedly, they had already been destroyed. The Ministry of Transport and Digital Infrastructure considered this to be in compliance with the law, arguing that the retention period expired five years after submission of the interim proof of use.

We noted that the relevant documents were not submitted to us immediately. We made it clear that the retention period begins to run only on submission of the final proof of use.

The Ministry meanwhile informed us that there had been a risk of confusion between the terms “interim proof of use” and “final proof of use”. Therefore, the Federal Railway Authority had drawn attention internally and vis-à-vis the grantees to the obligation to comply with the retention periods.

 

2016 Annual report Volume II No. 13 - Federal Railway Authority has improved processes related to the promotional funding of railway lines

The Federal Railway Authority has introduced standard forms and guidelines to ensure compliance of the promotional funding of the upgrading and building of federally and privately owned railway installations. By doing so, it ensures that applications and grant award notices include all required information.

The Federal Government gives grants towards investments in federally owned railway lines and privately owned railway sidings. This covers noise mitigation at existing railway lines e.g. by sound insulating windows as well as the construction and rehabilitation of private railway sidings. The Federal Railway Authority processes the grants. Where grantees apply for funds, the applicable legal provisions require them to make certain declarations on e.g. the start of construction and the acknowledgement that subsidy fraud is a punishable offence.

We found that often both the applications and the grant award notices did not include all required declarations. Without these, it is difficult to claim the refund of grants paid in cases of non-compliance. This could involve risks for the federal treasury.

We recommended that the Authority take steps to ensure that, in future, all applications and grant award notices will include the required declarations.

The Authority followed our recommendations and improved its processes. It has introduced standard forms and guidelines for the processing of grant applications. We consider these forms and guidelines suitable for enhancing grant-funding of investments in federally owned railway lines and private railway sidings.

 

2016 Annual report Volume II No. 11 - Funding for project “A Healthy Start into Life – Young Families Network” terminated – €3 million saved

In response to our recommendation, the Federal Ministry of Food and Agriculture terminated the funding of the project “A Healthy Start into Life – Young Families Network” and refused the establishment of a promotional foundation. This led to savings of more than €3 million in federal funds.

In the years 2009-2014, the Ministry funded the project with a total amount of €2.8 million.

Right from the start of the project, the grantee had been expected to develop a strategy for funding the Network without grant funds. In discussions between the Ministry and the grantee, the establishment of a promotional foundation for funding the Network was considered. An endowment capital was to be built up from donations, sponsorship money and grants from the Ministry and the yields from this capital were to be used for funding the Network.

At the end of project duration, no decision had been taken about the continued funding of the Network. Therefore, the grantee applied for further grants in the amount of €4 million.

We pointed out that the envisaged establishment of a promotional foundation implied an incalculable risk for the federal treasury. We doubted that sufficient donations and sponsorship money for building up the endowment capital of about €100 million would be received. Eventually, the Federal Government would have had to provide the necessary funds for the promotional foundation.

The Ministry took up our recommendations and chose not to establish a promotional foundation. Moreover, it rejected the grantee’s application for the further grant. Since 2016, the grantee has funded the Network without additional promotional grants. On the whole, the Federal Government has saved more than €3 million.

 

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.

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 I No. 57 - Eliminate overlapping of responsibilities for grants towards the residential placement of disabled pupils

The Federal Ministry of Education and Research has so far not taken any steps to simplify the administrative arrangements for awarding grants towards the residential placement of disabled pupils. The same life situation is covered by the remits of different offices. The separation between educational grants and integration assistance does not improve the beneficiaries’ financial situation.

Where disabled pupils live in a residential school, they may apply for grants to meet the costs thereby incurred. For educational costs, they receive benefits under the Federal Training Assistance Act; for costs connected with disability, they receive integration assistance pursuant to Book 12 of the Social Code. Subsequent to a 2009 ruling of the Federal Administrative Court, the costs of residential placement, e.g. of accommodation, meals and pedagogical care are to be considered as education-related and to be covered from benefits under the Federal Training Assistance Act. Only additional costs caused by the disability, e.g. for nursing, medical or social care have to be borne from integration assistance benefits. Up to 2009, integration assistance had covered all costs incurred for residential placement as being caused by disability.

The grants under the Federal Training Assistance Act are borne by the Federal Government, while integration assistance benefits have to be paid for by the states. The partial shift of claims to the Federal Training Assistance Act results in additional annual expenditure of €60 million for the Federal Government.

Due to the coexistence of claims under the Federal Training Assistance Act and the provisions on integration assistance, different funding agencies (training assistance offices, integration assistance offices) consider claims based on the same life situation “residential placement”. The only purpose of this arrangement is to apportion the funding to different public budgets; it does not increase the benefits received by disabled pupils. The overlapping responsibilities cause considerable administrative burdens and raise difficult questions of delimitation, e.g. if a training assistance office has to decide whether a claim relates to education or is caused by disability.

We recommended that the Ministry take speedy action to have the legislation changed with a view to having a clear funding structure and a single application procedure with grants being awarded by a single agency.

 

2016 Annual report Volume I No. 56 - Federal Ministry of Education and Research needs to ensure the repayment of educational loans

In 2006-2014, the Federal Administrative Office, acting on behalf of the Ministry, paid federal budget funds of €109 million for defaulted educational loans to the Development Loan Corporation. Only €19 million of this total were recovered from the borrowers. This is partly attributable to processing backlogs at the Federal Administrative Office. These led to delayed receipts of revenue and permanent losses of revenue. The Ministry has to ensure that the Federal Administrative Office processes repayment claims under educational loans speedily and completely.

Since 2001, students and pupils in advanced stages of their education may receive soft loans as educational loans. The loans are granted by the Federal Administrative Office on behalf of the Ministry. The Development Loan Corporation concludes the loan contracts with the beneficiaries and disburses the loans. The Federal Government assumes collateral liability vis-à-vis the Development Loan Corporation for defaulted loans.

In the years 2006-2014, the Federal Administrative Office paid federal budget funds of €109 million under the Federal Government’s guarantee to the Development Loan Corporation. Up to 2014, the Federal Administrative Office only recovered €19 million from the borrowers. This difference is partly attributable to processing backlogs at the Office. Within five years, the number of such default cases increased six-fold to 8,500. The Office omitted processing of individual cases for more than one year. For instance, it ascertained the addresses of borrowers with long delays, enabling repayment claims to be served only belatedly.

We criticised that the Ministry did not make adequate efforts to ensure speedy processing of the repayment claims by the Office. While the Ministry has meanwhile admitted a need for improvement, it does not perceive any fundamental problems.

The processing backlog continues to be high and adversely affects the federal budget. We expect the Ministry to meet its supervisory and budgetary obligations, ensuring that the Office will process repayment claims speedily and completely.

 

2016 Annual report Volume I No. 54 - €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 I No. 39 - The Federal Transport Ministry adheres to its decision to give grants towards an unsuitable pilot plant for the handling of containers

The Federal Transport Ministry abides by its decision to give grants towards a pilot plant for container handling although the plant is no longer suitable for that purpose. In addition, it gives grants towards a second pilot plant which permits much quicker and more cost-effective handling. The Ministry should restrict its financial support to the second plant and, for the time being, discontinue financial support for the unsuitable plant.

The Federal Transport Ministry provides financial support for the construction and upgrading of container handling facilities in which cranes transship containers from one means of transport to the other. There is a novel yet untested type of facility known as MegaHubs. In addition to the conventional trans-shipment between freight trains and lorries (trucks), these high-performance facilities are to permit quick trans-shipment between freight trains.

The Ministry intends to fund MegaHubs at the locations Lehrte and Duisburg nearly simultaneously. So far, no proof has been forthcoming that such facilities are effective and efficient. This has first to be proven by operating a pilot plant. We pointed out that, due to changed framework conditions, the facility at Lehrte is no longer suitable as pilot plant. We highlighted the fact that the effectiveness and efficiency of MegaHubs can be tested much quicker and much more cost-effectively. We therefore demanded that the Ministry restrict its financial assistance to the facility in Duisburg as pilot plant and discontinue federal funding of the MegaHub at Lehrte for the time being.

 

2016 Annual report Volume I No. 38 - Inaccurate determination base results in excessive grants for railway installations

The Federal Transport Ministry gives the federal railway infrastructure companies grants towards replacement investments in railway lines. The amounts of these grants were determined on the basis of the railway installations to be renewed. We advised the Ministry of numerous railway installations that were included in the determination base although they are not to be renewed. This leads to excessive grants of at least €10 million annually.

The Federal Transport Ministry gives the federal railway infrastructure companies grants towards replacement investments in existing railway lines. Since 2009, such financial support has been governed by a performance funding agreement under public law concluded between the Ministry and the railway infrastructure companies. Under this agreement, the railway infrastructure companies receive an annual lump-sum grant and in return commit themselves to maintain the railway lines in a condition specified by quality targets.

We drew attention to the fact that the amounts of the agreed grants were based on obsolete data. For instance, switches that can be no longer used were included in the determination base: their connections other tracks were interrupted or they had for years been overgrown with trees and shrubs. This resulted in excess grant payment of at least €10 million annually. The Ministry does not see any possibility for recovering these funds or to adjust the performance and funding agreement.

We demanded that, in negotiations for a follow-up agreement, the Ministry ensure that the grant amounts will be based on current and complete data but also that the contract include a provision for adjustment when he determinants for the grant amounts or for the agreed quality targets change.

 

2016 Annual report Volume I No. 37 - Officials sitting on project advisory boards may jeopardise independence and impartiality of authorities

Federal officials took part in the adoption of resolutions of local project advisory boards for citizens’ participation in railway projects. This may jeopardise the independence and impartiality of the Federal Government, especially of the Federal Railway Office. We expect the Federal Government to refrain from taking part in the work of project advisory boards in the future.

The Federal Transport Ministry provides financial support for investments in the construction of railway lines. The railway projects are preceded by regional planning and plan approval procedures that require participation by the general public. After that, the Federal Railway Office weighs all interests impartially and independently. It must avoid any exposure to undue influence.

Project advisory boards are to improve the participation of the public and the communication with the people concerned; they are no formal element of the plan approval procedure. Senior officials of the Federal Transport Ministry and the Federal Railway Office are co-founders and/or members of project advisory boards for several large railway projects. The project advisory boards called for additional noise abatement measures that exceed the legal requirements and would cause considerably higher expenditure.

We pointed out that the participation of federal officials in the work of project advisory boards may invalidate, impair and prejudice the regular administrative procedures. We also drew attention to the risk of conflicts of interest. We recommended that the Ministry prohibit the participation of federal officials in project advisory boards.

 

2016 Annual report Volume I No. 36 - The Federal Ministry of Transport and Digital Infrastructure accepts excessive planning costs linked to investments in existing railway lines

When signing a funding agreement for investments in railway lines, the Federal Ministry of Transport and Digital Infrastructure did not limit the funding of planning and administrative costs by the Federal Government to ensure the economic and efficient use of funds. During the five-year-term of the agreement, these costs are €922 million higher than in the case of comparable funding agreements that provide for a funding limit. We expect that the Ministry will in future limit the amount of planning and administrative costs eligible for funding.

Within a five-year period, the Federal Government provides funds of €18.8 billion under a so-called performance and funding agreement for the existing network (railway lines, stations and energy supply). In contrast to other funding agreements, the Ministry did not limit the amount of planning and administrative costs eligible for federal funding. It assumed that the entrepreneurial management of the grantees would guarantee the economic and efficient use of the federal funds also in the field of planning and administrative costs.

In fact, planning and administrative costs incurred in 2013 were equivalent to a 23 per cent premium on the construction costs. Thus, they were €922 million higher than e.g. with a 16 per cent limitation as provided for in the case of grants from the European Regional Development Fund. We therefore urged the Ministry to appropriately limit the financing of planning and administrative costs from federal funds under a subsequent funding agreement.

 

2016 Annual report Volume I No. 26 - The Federal Ministry of Food and Agriculture needs to discontinue or refocus export promotion

In 2010, the Federal Ministry of Food and Agriculture launched a programme to promote exports of agricultural goods for which there has hardly been any demand. The Ministry should analyse the need for its promotion programme and either discontinue or refocus the programme in line with measurable objectives.

The German agriculture and agro-industrial sector generates 25 per cent of its turnover abroad. In 2009, the export of agricultural products collapsed. In the following year, the Ministry launched a programme to promote export activities of the German agriculture and agro-industrial sector. The aim was to increase the number of 6,000 export-relevant companies and to maintain existing jobs or create new jobs. The programme focused on supporting planned activities of agricultural enterprises by awarding grants totalling up to 50 per cent of the costs.

We audited the performance of the promotion programme. We found that the German agriculture and agro-industrial sector had been able to constantly increase exports since 2010, reaching a peak at €67 billion in 2014. Within this period of time, hardly any programme funding was applied for. Since the number of private sector promotion programmes was small the Federal Ministry launched more and more own projects. Above all, it invited industry representatives to participate in business travels abroad at largely no costs. The private sector was reluctant to accept this kind of assistance so that the Federal Ministry even commissioned an external provider to contact potential participants.

We recommended that the programme be discontinued.

 

2016 Annual report Volume I No. 21 - Innovation funding for German maritime industry without any reimbursement clause is inefficient

The Lower House of Parliament suspended recovery of the innovation funding granted to German shipyards on a temporary basis. The Ministry did not rescind such suspension. Pursuant to budgetary law, the Ministry shall do so, if an innovation turns out to be an economic success. The Ministry should reinstitute the rule according to which grants are reimbursed to the federal budget in case of economic success.

Together with the coastal federal states, the Ministry has provided financial innovation incentives to the German maritime industry for about ten years. In 2016, federal funding for this purpose totalled €25 million, coastal federal states contributed another €12.5 million. Some federal states, however, had difficulties to release sufficient resources. By early 2009, shipbuilding companies had to pay back grants, if an innovation for which grants had been awarded turned out to be an economic success. In the wake of the economic and financial crisis, the Lower House of Parliament decided to suspend recovery of innovation funding on a temporary basis from 2009 to 2011 (lost grants). However, the Ministry did not lift this suspension.

The Ministry has no leeway to decide whether a grant is recoverable or not. Pursuant to budgetary law, grants are primarily to be awarded as recoverable grants. Moreover, in the past few years, more than two thirds of grants were awarded to only two highly innovative shipyard groups that count among the world’s top ship builders.

We demanded to reinstitute the principle under which grants needs to be reimbursed in case of economic success. This could help prevent free rider effects and mitigate funding problems of federal coastal states since the funds thus recovered could be used for other grant funding programmes.

 

2016 Annual report Volume I No. 20 - Booming tourism sector's funding share in the German National Tourist Board needs to be increased

The German National Tourist Board has the task to market Germany internationally as a travel destination. The Ministry provides annual funding of €30 million to support the German National Tourist Board and thus constitutes its major and almost only funding source. Although the German tourism sector is booming, tourist industry merely contributes 2.5 per cent of funding. However, the German National Tourist Board could do more to generate revenues. We expect the Ministry to develop a new funding strategy for the German National Tourist Board. In particular, the tourist industry’s funding share should significantly be increased and federal budget support should be reduced accordingly.

The Federal Ministry stated that the number of nights foreign guests spent in hotels and similar establishments showed that the German tourism sector was booming. The Ministry has lead responsibility for designing the tourism policy of the Federal Government. The lead responsibility to further develop tourism and to promote German travel destinations lies with the federal states. It is the Federal Government’s task to put in place the required framework for tourism in Germany. The Ministry supports marketing Germany as a travel destination at an international level. Such initiatives are managed by the German National Tourist Board, which was founded in 1948. Members of the German National Tourist Board are mainly tourism sector companies, industry stakeholders and retailers.

Federal Government is almost the only funding entity supporting the German National Tourist Board, whereas board members merely contribute 2.5 per cent of funding (2015). The German National Tourist Board also used federal funds where alternative sources of funding would have been available. The Board did not always calculate costs of its services in a transparent manner. In addition, the Board co-funded marketing measures initiated by the federal states although such measures are in the sole interest of the federal states.

We believe that this high level of funding is no longer reasonable under current conditions. We expect the Ministry to develop a new funding strategy according to which the German National Tourist Board

• significantly increases contributions of its members enabling the Federal Government to reduce funding accordingly and

• uses federal funds efficiently to achieve cost recovery and to pay due regard to the responsibilities of federal government and federal states.

 

2016 Annual report Volume I No. 19 - Federal Government provides funding for oversized new building to house Chamber of Crafts

The Federal Ministry for Economic Affairs and Energy provided excess financial support for the construction of the new building to house the Chamber of Crafts. The surface of the new building was oversized and the portion of funding borne by the Chamber of Crafts was too low. We expect the Ministry to limit grant funding to the minimum needed.

The Ministry provides grants towards investments in inter-company vocational training centres operated for the most part by chamber of crafts. We audited the construction of a new building. Construction costs were to amount to €64 million, €31 million of which were to be borne by Federal Government.

We highlighted the excess funding provided by Federal Government indicating that it could have been reduced by up to €8.1 million since the surface of the new building was oversized: Due to the demographic trend, the number of trainees is expected to decline. However, the new building offers 30 per cent more space for workshops and classes compared to existing buildings of the chamber of crafts. The canteen is also oversized. The Chamber of Crafts did not provide a justification statement for the guest house that was also funded from the federal budget.

Moreover, excess federal funding could have been reduced by €2 million due to an inaccurate calculation of the surface eligible for funding. Federal Government failed to prevent the Chamber of Crafts from spending at least €7.3 million of own funds to install unnecessary equipment such as a roof terrace and air conditioning. Such funds should have been better used for grant fundable equipment in order to ease the burden on the federal budget.

The Ministry needs to refocus funding of training centres in line with the principle of sound financial management. We also expect that grant recipients’ contribution is as large as possible.

 

2016 Annual report Volume I No. 29 – Compensation fund: Federal Ministry of Labour and Social Affairs uses funds in violation of applicable regulations

The Ministry misused the compensation fund resources to sponsor nationwide projects to enhance the employment opportunities of severely handicapped persons by exclusively using such funds to promote the database REHADAT. REHADAT comprises information about aids for disabled and severely disabled persons. However, resources of the compensation fund may only be used to enhance the employment opportunities of severely disabled persons.

REHADAT comprises detailed information about aids for disabled and severely disabled persons in the fields of medical rehabilitation and their participation in social and working life. The Ministry has sponsored REHADAT since 1988 with some €35 million. The funds exclusively stem from the compensation fund resources to sponsor nationwide projects to enhance the employment opportunities of severely handicapped persons. The compensation fund is an earmarked fund managed by the Ministry. The Ministry may use the funds only to promote the employment opportunities of severely handicapped persons (para 77(5), first sentence of the ninth German Social Code).

We criticized that the Ministry funded REHADAT exclusively with funds taken from the compensation fund. Funds from the compensation fund may only be used to enhance the employment opportunities of severely handicapped persons. We requested the Ministry to only fund those parts of REHADAT that are eligible to funding from the compensation fund.

 

2016 Annual report Volume I No. 28 – Inclusion: Awarding of grants for young people is unlawful

Compensation fund resources to sponsor nationwide projects to enhance the employment opportunities of severely handicapped persons are earmarked for a specific purpose. The Ministry acknowledged that the federal states promote young people with these funds without any evidence of severe disability.

However, this would require a prior change of legislation by the Ministry.

The Ministry launched a programme for inclusion and earmarked €80 million for guidance on the professional qualifications of severely disabled young people. The aim of this programme is to provide young people with severe disabilities with advice and information about vocational opportunities. Programme funds stem from the compensation fund resources to sponsor nationwide projects to enhance the employment opportunities of severely handicapped persons. The compensation fund is an earmarked fund that may exclusively be used to promote the employment opportunities of severely handicapped persons. The federal states are responsible for implementing the programme. When launching the programme, the Ministry pointed out to the federal states that a disabled person’s pass is not a necessary condition for sponsoring.

We criticized that the Ministry advocated the sponsoring practice of the federal states although it was contrary to the law. In order to promote young people without any evidence of severe disability, the Ministry should have determined the statutory conditions prior to programme launch.

We expect that the Ministry uses the funds taken from the compensation fund pursuant to statutory requirements.

 

2016 Annual report Volume I 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.

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.

 

2015 Annual report No. 68 - Duplication of training grants prevented

The Federal Ministry of Education and Research has taken up two of our recommendations for amending the Federal Training Assistance Act. These amendments prevent abusive duplication of grants. Moreover, the duration of the grants is clarified. The amendments adopted by the Legislature will come into effect on 1 August 2016.

By way of a sample audit, we found that there was a duplication of grants given to technical college students under the Federal Training Assistance Act and the Upgrading Training Assistance Act. The duplication was due in most cases to differing provisions on administrative jurisdiction: Under the Upgrading Training Assistance Act, administrative jurisdiction depends on the place of residence of the students while, under the Federal Training Assistance Act as it stands, it depends on the parents’ place of residence. This poses a risk of duplicate training grants, if the students live in another jurisdiction than their parents. We recommended precluding this risk by a legislative amendment. By aligning the provision on local jurisdiction under the Federal Training Assistance Act with that of the Upgrading Training Assistance Act, the risk of duplicate grants is reduced effective from August 2016.

We also recommended a legislative amendment that specifies the maximum duration of the claim to a training grant. Under the Act as it still stands, the training and the connected grant end e.g. on the day of the final examination. We found that most training courses mostly ended before expiry of the respective calendar month. Nonetheless, the grants were awarded up to the end of the respective month and this practice was confirmed by court rulings. The wording of the Federal Training Assistance Act was amended so as to make it clear that the claim to training grants is valid up to the end of the month.

 

2015 Annual report No. 67 - Transparency of expenditure on research structures abroad

Like other scientific institutions, the Max Planck Society uses an increasing portion of its resources to develop and use research structures abroad. One of the structures thus supported is a new institute in Florida. While, initially, no Federal Government funding was given, the Society must now annually channel €4 million in federal funds into this institute. The Federal Ministry of Education and Research should ensure greater transparency in disclosing the allocation of federal funds to research structures abroad. The Ministry must inform Parliament on a timely basis whenever a new need for institutional grants for this purpose becomes apparent.

The Federal Ministry of Education and Research allocates funds of about €750 million annually to the Max Planck Society. Parliament and the public have only limited access to information about the extent to which the Society uses these funds to develop and operate research facilities abroad and to participate in the research infrastructures of foreign partners.

The allocation of federal funds to research structures abroad may contribute substantially to the further development and competitiveness of Germany as a science location. This contribution and its impact should be visible for Parliament and the public. Therefore, we recommended that the total amount of the funds allocated by the Max Planck Society and other big science institutions be disclosed in the Federal Budget. Also, the Federal Ministry of Education and Research should carry out the long announced evaluation of the internationalisation strategy for science and research as soon as possible.

The Society also supports a new institute in Florida which initially was not to receive Federal Government funding. However, financial planning was not realistic. Therefore, the Society now has to channel €4 million annually to that institute. The German Parliament’s Budget Committee had made such channelling contingent upon its approval in each individual case. The Ministry should have complied with this reservation. To ensure that the Budget Committee has a sound basis for its decisions, the Ministry must in future report to the Committee on a timely basis whenever such new funding need arises.

 

2015 Annual report No. 66 - Foundation scheme for technology transfer foils budgetary law

The Federal Ministry of Education and Research supported a scheme used by research institutions for the exploitation of research results (technology transfer) contrary to the federal interest. It initiated a scheme which evades the requirements of budgetary law. As a result, certain activities became largely exempt from the influence of the Federal Government and from our audit.

As early as in 2001, research institutions that received basic public financing established a foundation and an exploitation company as a common scheme for technology transfer. The Federal Ministry of Education and Research supported the scheme to evade the provision requiring the consent of the Federal Ministry of Finance. It also funded the exploitation company by ensuring, by means of special-purpose contributions to the research institutions, that the company obtained ‘assured’ contracts whose volume meanwhile exceeds €10 million.

We pointed out fundamental deficiencies with respect to legal provisions about Federal Government shareholdings, about federal grants and public procurement. The Ministry subordinated the federal interests which it had to safeguard in its function as manager of a Federal Government shareholding to the economic interests of the research institutions. By doing so, it set aside the Federal Government’s impact on and supervisory powers over the company. Moreover, by funding the exploitation company via ‘assured’ contracts, it also evaded requirements imposed by the law on grants and on public procurement.

The Ministry must create a legally compliant basis for the scheme. To do so, it is indispensable that the Federal Government be given adequate influence on the corporate governance of the companies in which it holds shares and relevant audit rights. The Ministry must also decide whether to give grants to the exploitation company with regard to its role as infrastructure for the research institution or whether to treat the company as a contractor of the research institutions. In any 120 case, the foundation will align its research funding to scientific criteria and does not primarily pursue economic interests of the research institutions.

 

2015 Annual report No. 64 - Federal Ministry intends to better examine grants to a charity

The Federal Ministry for Economic Cooperation and Development has taken up our key recommendations and now intends to consistently review grants to a large recipient. It also has taken steps to ensure that the grantee reduces excessive management salaries and claims the refund of unjustified pay supplements.

The Ministry gives institutional grants to a non-profit organisation to enable it to execute certain programmes on behalf of the Federal Government. We studied as to whether the organisation had complied with the ban on more favourable treatment laid down in budgetary law. This ban means that a grantee may not pay its employees higher salaries than those of comparable federal employees. We found that the organisation had paid excessive salaries, had not complied with the staffing schedule and had in many cases failed to give due proof of its personnel expenditure. It had thus not complied with the ban on more favourable treatment. We made recommendations for corrective action.

The Ministry took up our recommendations and will in future include the organisation’s personnel expenditure in the examination of the proper use of the grant funds. It made the organisation reduce the salaries of its management. Moreover, it demanded that the society review objectionable employment relationships under aspects of budgetary and employment law. In addition, the Ministry urged the organisation to carefully document the reasons for employing people in higher pay grades and to limit overtime. It also ensured that the repayment of overtime bonuses will be demanded.

 

2015 Annual report No. 63 - Ministry waives the repayment of €32 million

The Federal Ministry for Economic Cooperation and Development waived the repayment of €32 million of unused residual funds due from an international aid organisation. Following our recommendation, the Ministry has developed a procedure to promptly claim refunds in the future.

The Ministry has for many years given grants towards projects of an international aid organisation. Unspent funds were to be repaid to the Federal Government immediately after having accounted for a project. Any other use of the unspent funds was permitted only with the Ministry’s written consent. Projects completed in the years 1996-2006 resulted in a total amount of €32 million of refund claims of the Ministry.

We found that the Ministry failed to make any refund claims, thereby infringing provisions of budgetary law. The Ministry has promised to monitor the future outflow of funds in conjunction with the aid organisation. Beyond that, we expect that the Ministry, before making oral funding commitments in negotiations with international organisations, will ensure that the related requirements of budgetary law will be met. We will monitor whether the Ministry promptly claims the repayment by the aid organisation of funds spent on other than the specified purposes or after the spending deadlines.

 

2015 Annual report No. 54 - Determination and use of grants have not been sufficiently reviewed

The Federal Centre for Health Education had not – or not in time – reviewed the use of grants by a registered association. Although we pointed this fact out repeatedly, it did not address this shortcoming. Furthermore, it did not take into account the association’s financial situation for the support for a long time.

The Federal Centre for Health Education has granted benefits to the association for more than 25 years. We found that it reviewed the proofs of proper use from 2003 to 2012 in less than one third of the cases. These proofs of proper use were based on a funding volume of €45.5 million.

Due to inheritances and donations, the association built up reserves of €4.2 million at the end of 2014. Should a beneficiary build up a reserve, the granting body may request its appropriation. The reasons for it are that benefits may only be granted

• if the federal government has a significant interest in fulfilling a specific purpose by bodies from outside the federal administration and

• the beneficiary has no sufficient own resources for this task.

We noted that there was no or only a late verification of use. We also noted that the Federal Centre for Health Education did not take into account the association’s financial situation when calculating the share of equity for many years. We expect the Federal Centre for Health Education to clear the backlogs in the verification of use. Moreover, the association should provide its own resources as provided for by applicable rules to fund its projects in future.

 

2015 Annual report No. 39 - Railway construction: Federal Government receives refund of €320,000

The Federal Railway Authority succeeded in obtaining the refund of €320,000 from a railway infrastructure company. It had followed our recommendation.

On the basis of contracts, the Federal Government reimburses railway infrastructure companies for eligible building and planning costs for construction projects in its railway network. The companies have to use the federal funds economically and efficiently. If they obtain revenue, e.g. from the sale of waste material, they have to credit the respective amount to the Federal Government.

One company had sections of track renewed by contractors. We found that the company charged the Federal Government excessive costs and did not credit it with revenues. The company also invoiced faulty work delivered by the contractors.

We alerted the Federal Railway Authority to the company’s excessive invoices and requested claiming the refund of the federal resources inappropriately used by the companies.

The Federal Railway Authority acknowledged our findings. The company refunded €320,000 to the Federal Government.

 

2015 Annual report No. 36 - Federal Railway Authority is expected to demand an appropriate refund from railway infrastructure companies

Railway infrastructure companies systematically charged the Federal Government excess costs. The Federal Railway Authority has not yet demanded an appropriate refund.

The Federal Government compensates railway infrastructure companies for costs eligible for funding the construction of new and the upgrading of existing railways tracks. This also includes the companies’ planning and administrative costs.

Companies charged their costs differently than agreed with the Federal Government. Thus, the Federal Government paid planning and administrative costs twice which led to considerable excess payments.

The Federal Railway Authority stated that it wanted to use sampling to determine the total amount of loss. In doing so, it depends on the companies’ willingness to cooperate. It did not have appropriate data for the sampling before three years have elapsed.

We recommended that the Federal Ministry of Transport and Digital Infrastructure ensure that an appropriate refund be demanded without delay. In future agreements, the Federal Railway Authority is expected to provide for possible sanctions if the companies systematically do not charge their costs in accordance with the agreement.

 

2015 Annual report No. 29 - “Regional advice on bioenergy” model project terminated

Following our advice, the Federal Ministry of Food and Agriculture terminated the model project for regional advice on bioenergy. Thus, the funding of advisory services provided by twelve regional bioenergy advice centres and the services were partly inefficient.

The Ministry has federal budget funds of about €50 million at its disposal for research and development concerning the use of renewable resources and for public relations activities in this field. It used these funds to give grants to regional bioenergy advice centres as a model project. These advice centres are to provide advice mainly to farming and forestry businesses on the production and use on bioenergy and to inform the public about the cultivation and use of non-food crops. Between September 2009 and year-end 2012, the Ministry gave grants of €4.2 million for this purpose. It commissioned the Agency for Renewable Resources to implement the grant-funding.

We found that the Ministry

• failed to define measurable goals and

• show that the project was appropriate and necessary to contribute to federal mission performance.

The Agency for Renewable Resources

• did not select the grantees in accordance with uniform criteria and

• tolerated that grantees awarded contracts non-competitively and had submitted erroneous accounts.

We alerted the Ministry to these weaknesses and demanded that the model project be terminated, cases of irregularity investigated and steps taken to obtain refunds.

The Ministry followed our advice and terminated the model project. It reported to us that the grantees had refunded grants in response to our findings. Furthermore, the Agency had examined other grants and claimed refunds. Moreover, the Ministry told us that it had imposed organisational changes on the Agency with a view to ensuring that budgetary law is complied with.

 

2015 Annual report No. 25 - Trust fund of more than €100 million no longer necessary

The pension fund for farmers has managed a federal trust fund since 1952. Since 2005, this trust fund has been used to promote agricultural innovations. The Federal Government performs the same task with own programmes and budget funds. We recommended that the trust fund be dissolved and transferred to the federal budget to eliminate duplicative structures. The Federal Government could increase its budget by more than €100 million.

The pension fund has managed a federal trust fund since 1952. The purpose of this fund is to promote innovations in agriculture, forestry, horticulture and fishery. It amounted to €109 million at year-end 2014.

We examined how the pension fund managed the trust fund. We found that marketable products or procedures were promoted as innovation in about one third of the cases we looked at. These included, for example, the development of a seal for wines even though there had already been six comparable seals on the market.

The Federal Ministry of Food and Agriculture also promotes agricultural innovations. As it is a priority for the Ministry, it provided federal funds amounting to €59 million in 2014.

We note that the trust fund is only adequate if the task can be performed more efficiently than if it is made by the Federal Government. This is not the case. We therefore requested the Federal Ministry of Food and Agriculture to have the trust fund dissolved and transferred to the Federal Government, which would eliminate duplicative structures and increase the federal budget by more than €100 million.

60 We expect the Federal Ministry of Food and Agriculture to ensure a speedy amendment of the applicable regulation.

 

2015 Annual report No. 23 - Ministry discontinues funding subordinate institutes from SME grants

Acceding to our repeated demand, the Federal Ministry for Economic Affairs and Energy has terminated the “MNPQ-Transfer” funding programme. This was the programme assigned for the support of SMEs, although most of the grant funds went to the Ministry’s technical and scientific federal institutes. €3.5 million had been budgeted for this support programme.

In FY 2000, the Ministry launched a funding programme to support especially SMEs. Results of research and development carried out by the scientific and technical institutes and technologies were to be transferred increasingly to SMEs.

In our 2003 annual report, we found that the Ministry largely supported projects involving core functions of the federal institutes. The PAC endorsed the report item concerned in 2004. The Ministry pledged that it would only fund projects that had already been approved.

Nevertheless, the Ministry developed procedures for the nearly identical new programme “MNPQ-Transfer”. It implemented that programme, although we objected once more to this decision.

We audited the “MNPQ-Transfer” programme and found that it once more had been expressly described as aiming at the support of SMEs. However, the support funds once again mostly went to federal institutes in connection with the performance of their core tasks.

We noted that it was impossible to distinguish between projects eligible for support and activities belonging to the core functions of the federal institutes. Technology transfer, being the main purpose of the programme, is at the sametime a core task of the federal institutes. These have to fund the performance of their own tasks from their regular budgets.

During our audit, the Ministry had still stated its intention to continue the support programme in a revised form. Now it has waived the extension of the programme. We will verify the Ministry’s compliance.

 

2015 Annual report No. 22 - Federal Ministry for Economic Affairs and Energy discontinues funding programme Explo II

The Federal Ministry for Economic Affairs and Energy follows our recommendation and discontinues the funding programme designed to improve the supply of critical raw materials to Germany (Explo II). Total expenditure of €22.5 million had been earmarked for FYs 2013-2015. For the two subsequent years, expenditure totalling €20 million had been planned. We found that there was no need for this funding.

The Federal Government intended to improve the supply of German industry with non-energetic mineral raw materials by means of an exploration funding programme. This concerns raw materials such as titanium and cobalt for which the future supply situation is believed to be especially difficult. The funding guideline for the programme came into force in January 2013 and is limited until December 2015. Funding of €7.5 million each had been estimated for FYs 2013-2015.

We found that companies filed 15 grant applications up to January 2015. They withdrew six of these applications. The Ministry rejected one application. It approved funding for five projects of four companies. Disbursements in 2013 and 2014 totalled about €380,000 and thus fell far short of what the Ministry had expected.

We demanded that the funding programme be discontinued and the external evaluation omitted. The Ministry has followed our recommendations and discontinued the funding programme.

 

2015 Annual report No. 15 - German Swimming Federation should use federal funds efficiently

Assisted by the Federal Office of Administration, the Federal Ministry of the Interior intends to ensure that the German Swimming Federation uses the federal funds efficiently and properly. Furthermore, the Federal Office of Administration will review the Federation’s sound management. In future, the Federation is expected to provide more own resources. It has amended internal regulations to improve the oversight of the use of funds. All parties thus implement our recommendations.

The Federal Ministry of the Interior supports the German Swimming Federation as high-performance sport representative with annual grants of more than €4 million. The Federation covers its expenses mainly by federal grants. The Federal Office of Administration supports the Ministry in this regard. Its task is to check whether the funding is appropriate and whether the Federation has used the federal funds efficiently and properly.

We noted that in a number of cases the Federation used the federal funds inefficiently and improperly. It did not comply with a considerable number of rules for public funding and the own statutes and financial regulation. One reason for this was the high degree of independence of the federal divisions in financial matters. Furthermore, the Federation did not use a significant amount of funds. Moreover, we noted that the Federal Office of Administration did not carry out its tasks in the grant allocation procedure properly.

We demanded that the Federal Ministry of the Interior review the amount of grants given to the Federation. We recommended to the Federal Office of Administration to intensively monitor the use of federal funds. Furthermore, the Federal Office of Administration is expected to review the Federation’s capital adequacy. We advised the Federation to observe the rules for public funding, its own statutes and financial regulation and to improve the internal oversight of the application of funds. Due to the many instances of identified non-compliance, we demanded that the Federal Office of Administration reviewed the Federation’s sound management.

The Federal Ministry of the Interior, the Federal Office of Administration and the Federation agreed with our recommendations and have already implemented some of them. Thus, the Federal Office of Administration has reviewed capital adequacy and provides for an increase. The Federation has changed internal regulations to improve the oversight of the application of funds.

We consider the action taken appropriate for an efficient and proper funding of the Federation. We intend to follow-up on the implementation of the improvements.

 

2015 Annual report No. 14 - Federal Ministry of the Interior intends to enhance the promotion of high performance sport

Taking up our recommendations, the Federal Ministry of the Interior intends to improve the promotion of high performance sport. It intends to revise the method for calculating the basic grants to the sports associations and to increase project funds in relation to basic funding. It plans to annually review the plausibility of the associations’ objectives for which grants are given and to adjust grant-funding in line with current developments and to rely on independent sports expertise.

The strategy for financially supporting the Olympic high performance sport associations distinguishes between basic grants and project grants. Basic funding is planned for a period of four years (Olympic cycle), while decisions about project grants are taken by the Ministry annually. The German Olympic Sports Confederation and the respective national sport association define the projects in a target agreement. In 2013, the Ministry gave grants of €46.3 million to the associations. Furthermore, they receive indirect support by using certain sport facilities and research institutes. The volume of these indirect benefits totalled about €40 million in 2013.

We doubted that the allocation of basic grants was in line with the federal interest. We further found that the Ministry did not draw on independent sport expertise when checking the plausibility of the target agreements. Rather than that, it relied exclusively on the German Olympic Sports Confederation. However, that Confederation is not an independent consultant but primarily a lobbyist for the interests of the associations it represents. Finally, we pointed out that the Ministry could disclose the indirect support in a more transparent way by linking the costs of the use of sports facilities and research institutes to the various associations.

We recommended that the Ministry review the criteria for the allocation of basic funding. In connection with promoting high performance sport, the Ministry should also draw on independent sport expertise. In addition, it should consider the expediency of increasing the project funds at the expense of basic funding in order to readjust target achievement annually. Finally, it should disclose indirect support in a more transparent way.

The Ministry intends to revise its strategy for the promotion of high performance sport, thus implementing our recommendations.

 

2015 Annual report No. 12 - Federal Foreign Office improves its programme results evaluations

The Federal Foreign Office has pledged to design its support programmes and projects in line with clear and measurable objectives and improve programme results evaluation within its remit. It does so in response to our recommendations.

The Federal Foreign Office gives grants of €1 billion annually towards various support programmes and projects which are to secure peace and stability worldwide, to provide humanitarian aid in cases of disaster and crisis and to impart cultural values as well as the German language abroad.

All federal ministries are to regularly carry out programme results evaluations to verify that their support programmes and projects are effective and efficient. Only thus it is possible to check whether the objectives set are actually accomplished and whether appropriate use is made of the federal funds provided.

In several instances, we found that the Federal Foreign Office neglected the steering and programme results evaluation of its funding measures. In many cases it did not set clear objectives, did not design indicators for evaluating results and defined the purpose of the funding in so general terms that valid results evaluations were nearly impossible. The decision about whether wider analyses should be undertaken, beyond programme results evaluations, was often left to the functional divisions.

We have urged the Federal Foreign Office to underpin all support programmes and projects with clear and measurable objectives and suitable indicators. Moreover, we suggested that, in future, regular programme results evaluations 38 and, in case of key funding measures, wider analyses take place and be made obligatory.

The Federal Foreign Office has admitted the deficiencies found. It has pledged to design its support programmes and projects in line with clear and measurable objectives. The Office intends to steer its funding measures in a better targeted and results-oriented way. It has set up a working group which has developed a variety of ideas and proposals for improvement in a short period of time. Furthermore, the Office issued guidance for programme results evaluations and trained its staff accordingly.

 

2015 Annual report No. 06 - Federal Ministry of Finance improves the protection against subsidy fraud

Each year, the Federal Government grants subsidies in the range of billions of euros. In the administrative regulations on the Federal Budget Code, the Federal Ministry of Finance explains how the protection against subsidy fraud can be strengthened during the grant-award procedure.

The Ministry was prompted to do so by the recommendations we had made. We found that, across all departments, the grant-awarding authorities had not precisely described the circumstances warranting a grant. Where the grantees misrepresented the facts, it was therefore impossible to prosecute them for subsidy fraud.

We recommended that the Federal Ministry of Finance urge that facts which are material for eligibility for subsidies be appropriately described.

The Federal Ministry of Finance took up our recommendation. It explained, in the administrative regulations on the Federal Budget Code, how circumstances that determine eligibility should be described. These instructions contribute to better protection of public assets against subsidy fraud.

We expect that the positive development will be sustained. This is the way in which the Federal Foreign Office can appropriately steer its funding measures and make sure that its support funds are used in a results-oriented manner.

 

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.

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.

 

2014 Annual report No. 65 - Grant recipient returns €0.3 million euros to Federal Government

Following the German SAI’s indication of non-compliance with grant terms and conditions the recipient of a grant awarded for the construction of a residential school for apprentices returned €310,000 to Federal Government.

Federal Government may withdraw a grant, if, for example, the grant recipient does not comply with grant terms and conditions or misuses grant funds.

The Federal Ministry of Education and Research promotes inter-company vocational training centres. The Federal Institute for Vocational Education and Training implements funding programmes on behalf of the Federal Ministry.

A grant recipient claimed a grant to partly cover construction costs of a residential school. The school building also includes a caretaker’s flat. The Federal Institute set out in the grant terms and conditions that the grant recipient shall comply with the regulations on contract awards for public works. The Federal Institute further stipulated that the grant recipient shall use the funds in accordance with grant terms and conditions and to what amount costs for project control services are eligible for grant funding.

The German SAI found that the grant recipient did not fully comply with the regulations on contract awards for public works. Moreover, it occurred in three cases that the grant recipient claimed payment of costs for project control services totalling an amount three times higher than the amount acceptable to Federal Government. And, the German SAI found that the grant recipient did not use all areas of the building in accordance with the grant terms and conditions: The caretaker’s flat stood empty for several years.

The German SAI alerted the Federal Institute to the non-compliance of the statutory provisions governing public grants. The German SAI recommended that the Federal Institute examines whether the grant must be claimed back in whole or in part. The Federal Institute followed the German SAI’s recommendations and reduced the awarded grant amount. The grant recipient returned €310,000 to Federal Government.

 

2014 Annual report No. 64 - Energy efficiency of premises of the Max Planck Society for the Advancement of Science will be enhanced

In order to be able to efficiently operate the technical facilities of its premises, the Max Planck Society for the Advancement of Science pledges to update inventory documents of its premises on a regular basis and to establish a full energy monitoring system. This will allow the Max Planck Society to identify savings potentials and to optimise energy consumption. Moreover, the Federal Ministry of Education and Research pledges to issue a regulation reducing the use of large glass panes, and thus energy consumption, when constructing new buildings for Max Planck Society. In implementing these measures, the Federal Ministry and the Max Planck Society follow the German SAI’s recommendations on enhancing energy efficiency of buildings.

Grants to the Max Planck Society are awarded by both Federal Government and federal states.

The Max Planck Society has its own construction department. This department, that is responsible for planning the construction, conversion and expansion of buildings, may rely on freelancers.

Assisted by the regional audit office in Berlin, the German SAI examined five existing institutes and the construction plans of eight new institutes in terms of energy efficiency. The German SAI found that inventory documents are incomplete and that energy consumption has not been fully measured and assessed. Hence, an energy efficient operation is possible only to a certain extent. Furthermore, the German SAI found that the cooling concept employed for glazed entrance halls of existing institutions is energy intensive and partly ineffective. As construction plans for new institutes show, entrance halls will still have large glass facades although the disadvantages of such a construction are well documented.

The German SAI requested the Federal Ministry of Education and Research to ensure that inventory documents are updated regularly and that energy consumption is fully measured and assessed. The German SAI also required the Federal Ministry to issue a regulation limiting the construction of glass facades in entrance halls.

The Federal Ministry of Education and Research follows the German SAI’s recommendations. The Max Planck Society pledges to regularly update inventory documents and to fully measure and assess energy consumption in the future. Moreover, the Federal Ministry pledges to reduce the use of glass panes to a meaningful level.

 

2014 Annual report No. 57 - Better use will in future be made of the expertise of the construction administration also with relation to public-private partnerships

In response to our recommendation, the Building Ministry will urge the other federal ministries to involve the construction administration also in connection with construction projects of recipients of federal grants carried out under public-private partnership (PPP) arrangements. This serves to make better use of the expertise of the construction administration also for such PPP projects.

Where grants towards a construction project exceed certain thresholds, it is obligatory to involve the technically responsible construction administration. One of the tasks of that administration is to advise the grantee when the latter prepares application and design documents for its construction project. In that context, the grantee also has to review alternative options to identify the option to procure floor space that provides best value for money, e.g. build, rent premises or procure premises via PPP.

A grantee that receives institutional funding mostly from the Federal Ministry for Education and Research intends to erect an event centre. He opted for a new building to be erected under PPP arrangements without proper study of all options for meeting its space needs. The construction administration was not involved, although it would have had to be involved in view of the estimated costs of the building to be erected. The reason given by the Education and Research Ministry was that, under PPP, the contracting entity will not be the grantee but the potential private investor and that, therefore, involvement of the construction administration could be dispensed with.

We recommended that the Building Ministry clarify the role of the construction administration in connection with PPP projects of recipients of federal grants because the construction administration must also be involved in PPP projects of grantees receiving institutional funding. The Federal Government funds such building projects indirectly. The professional expertise of the construction administration is to support cost-effective building work. Following our recommendations, the Education and Research Ministry has involved the construction administration in the project.

Following our recommendation, the Building Ministry will inform the other federal ministries of this in writing.

 

2014 Annual report No. 41 - Federal Government successfully claims refund of €921,000

Following our advice, the Federal Railway Administration claimed the refund of €921,000. A railway infrastructure company had charged planning costs both as construction costs and as flat rate remuneration.

The Federal Government reimburses the railway infrastructure companies the expenditure on eligible construction costs. Necessary planning costs are remunerated by a surcharge calculated as a percentage of the construction costs. This so-called planning-cost flat rate also covers the cost of renting equipment for testing and inspection. We audited the accounts of the building costs for the Chemnitz rail node. We found that the company had invoiced rental costs of €815,000 as construction costs. It had thus also received an excessive planning-cost flat rate.

We criticised that the Federal Government had both recognised the rental costs as building costs and remunerated them via the planning-cost flat rate. We asked the Federal Railway Administration to claim the refund of the federal grants wrongly received by the company.

The Federal Railway Administration confirmed our findings and claimed the refund of €921,000 from the company. This refund claim was one of the reasons that prompted the Federal Railway Administration to conduct an overall review of the companies‘ invoicing practices of recent years.

We hold that a continued comprehensive review of the companies‘ invoicing practices will be necessary.

 

2014 Annual report No. 39 - Revise grant funding of freight transport industry

Programmes funded from toll revenues with a view to promoting environmental friendliness, security and qualification in the freight transport industry have triggered considerable deadweight effects. The Ministry did not sufficiently align the programmes with the objectives of grant funding.

The Federal Transport Ministry supports freight transport enterprises by means of several programmes. These include a programme for the promotion of security and environmental friendliness (known as De-minimis programme) and a programme for promoting initial and continued training, qualification and employment (training programme). In the years 2009-2012, the Ministries spent €919 million on these programmes.

We criticised that, with the programmes, the Ministry has funded many measures which would have been implemented anyway. For instance, it funded legally prescribed accessories for trucks (lorries), e.g. devices for securing the load and for lighting. Via the training programme, it gave grants towards training which truck drivers are obliged to undergo according to the Professional Drivers‘ Qualification Act. Other grants were necessary to ensure the continued operation of the enterprises. On balance, a large part of the grants have not created an incentive for achieving their statutory objectives. This is inadmissible under budgetary law. The Federal Government may only give grants towards measures which otherwise would not be carried out at all or not to the necessary extent.

We asked the Ministry to revise the programmes and to ensure regular and effective grant funding of the freight transport industry. It must exclude all measures which would be carried out anyway without federal grants.

 

2014 Annual report No. 38 - The Federal Transport Ministry approved funding of €54 million for novel signal technology without the required operating schedule

The Ministry did not concurrently monitor and control the new construction of a railway line to the required extent. The technical and operational requirements have changed several times since the planning was started. The Ministry approved federal funding of the novel Europe-wide standardised signal technology without taking due regard to these changes. For purposes of the programme results evaluation required under budgetary law, it would have had to lay down technical and operational requirements for the equipment of the railway line with signal technology.

For the construction of the new railway line from Nuremberg to Erfurt, the Federal Transport Ministry awarded grants of €1.8 billion since planning had started. Since then, the legal framework changed several times. In 2009, the Federal Republic of Germany had entered into an obligation to use a novel Europe-wide standardised signal technology. In 2012, the Ministry awarded grants of €54 million for the equipment of the said railway line with signal technology. However, it did not state any line capacity requirement the planned signal technology would have to meet. We found that the funding applications of the railway infrastructure company lacked information on the operation schedule, i. e. the planned daily number of trains, their speeds and the distribution of train services to the night and day hours.

We have criticised that the Ministry monitored and steered this infrastructure project inadequately. Before approving federal funding for the signal technology, the Ministry would have had to establish the current operating schedule.

The Ministry argued that, when approving the signal technology, it was able to waive an operating schedule and the proof of line capacity. It went on to say that these had already been examined when federal funds for other construction services were granted.

We expect the Ministry to exert its influence to achieve the highest possible line capacity with the novel signal technology in spite of the changed regulatory framework. In our opinion, concurrent project monitoring and control by the Ministry continues to be necessary for the rest of the construction period. The Ministry must obtain current information about the operating schedule and impose appropriate requirements for the planning and construction of the signal technology. Without such information and requirements, the Ministry moreover lacks the basis for a programme results evaluation.

 

2014 Annual report No. 35 - The Federal Employment Agency pledges to ensure that, as required by law, third parties contribute to supporting career guidance programmes

The Federal Employment Agency pledges to ensure that third parties will contribute to supporting career guidance programmes and that such contribution will – as stipulated by law – amount to at least 50 per cent. Moreover, the contribution must be in money. This is to comply with the German SAI’s recommendations.

To facilitate the transition from school to working life, employment agencies may offer career guidance programmes to pupils. However, the prerequisite for this is that third parties, such as the German federal states, guilds and business enterprises, contribute to supporting such measures and that such contribution amounts to at least 50 per cent. Contributions by third parties should preferably be in cash.

We found that the agencies supported career guidance programmes even if the co-financing rate did not reach 50 per cent. The contribution made by third parties often only represented a very small proportion of total costs. In one case, an agency bore almost all costs (€156,000 of €157,000).

Furthermore, the agencies frequently did not observe the rule that a contribution should generally be in money. In fact, they also accepted the provision of staff and other non-cash contributions.

The German SAI recommended that the Federal Employment Agency observe the rule laid down in law that at least 50 per cent of total costs have to be covered by third party contribution. The Agency should ensure that third party contributions are made in money.

The Agency followed or of our recommendations. This allows the Agency to reduce its share in total costs.

 

2014 Annual report No. 26 - Ministry for Economic Affairs eliminates deficiencies in the audit of documents proving the use of funds

Following our recommendation, the Federal Ministry for Economic Affairs and Energy has enhanced the review of documents proving the use of funds within its remit. It gave the responsible bodies instructions on how to properly audit documents proving the use of funds, and it intends to improve the documentation of audit findings and conclusions by means of standardised formats. More field audits are expected to contribute to an earlier identification of beneficiaries’ infringements. Furthermore, the Ministry prompted a speedy reduction of backlog cases in the audit of documents proving the use of funds.

Financially supporting projects is the Ministry’s largest area of responsibility. Thus, properly auditing documents proving the use of funds is of particular importance. The Ministry does not only have to account for and explain whether the funded projects have been implemented as proposed but it also has to identify undesirable developments in due time and draw conclusions for future grant decisions. The Ministry regularly commissions the Federal Office for Economic Affairs and Export Control and other project management organisations to audit documents proving the use of funds.

The Ministry and the project management organisations did not check whether the funds were used in line with budgetary regulations. Thus, cursory reviews of the project management organisations sometimes did not take place or were not properly documented. In some support areas, fieldwork on the beneficiaries’ premises was not at all or only rarely conducted. The Ministry did not specify a standard format for the required memo on the verification of proofs of the use of funds. Contrary to its promises made in 2011, it did not reduce the backlog of cases in the audit of documents proving the use of funds.

The Ministry concurred with our recommendations. It has taken steps to improve the audit of documents proving the use of funds. Thus, the obligations in the cursory examination of documents proving the use of funds were pointed out in writing particularly to the Ministry’s relevant divisions, the Federal Office for Economic Affairs and Export Control and the project management organisations. The Ministry promised to take up our suggestions on in-depth audits by initiating further steps. E.g. it revised the specifications on the contracts with the project management organisations. Moreover, it prescribed a number of field audits and standard formats for memos on the audit of documents proving the use of funds.

We consider the Ministry’s actions appropriate for ensuring a proper and efficient audit of documents proving the use of funds. We will monitor whether the individual actions have the expected effects.

 

2014 Annual report No. 24 - Grants under the “go-effizient” support module currently inefficient

The Federal Ministry for Economic Affairs and Energy awarded non-repayable grants for external consulting services in enterprises under the “go-effizient” support module. The potential cost advantages to be achieved by the enterprises exceeded the consulting fee in almost all cases. The Federal Government could save €2.8 million annually if the Ministry awarded repayable grants.

The Federal Ministry for Economic Affairs and Energy supports enterprises in developing product and process innovations. Under the “go-effizient” module, the Ministry funds a proportion of the cost of external consulting services, especially in small and medium-sized enterprises. As a result, enterprises should achieve considerable savings in (raw) materials. They have to pay the proportion of the consulting fee that is not funded by the Ministry. The Ministry grants non-repayable funds. Budgetary regulations stipulate that repayable grants should have preference.

In 91 per cent of the audited 94 grant cases, the value of the annual potential (raw) material savings exceeded the consulting fee. Furthermore, consultants and enterprises identified additional cost advantages in 59 per cent of the grant cases. Thus, almost all enterprises receiving consultancy services could have generated the consulting fee within one year through annual potential savings.

We criticised the non-repayable grants as unnecessary and inefficient and demanded that future support should be given in the form of repayable grants. The fund allocation procedure under the “go-effizient” module allows a decision-based on successful consulting. For justified exceptional cases, the Ministry could waive the repayment of the grants.

 

2014 Annual report No. 16 - Enhanced funding of Olympic Training Centres

Olympic Training Centres annually receive several million euros of funding from the Federal Ministry of the Interior. The Centres partially used these funds improperly or inefficiently. The Federal Ministry of the Interior took up our recommendations. Thus, inter alia, it will arrange for regular in-depth audits to verify that the Olympic Training Centres use their funds efficiently, in compliance with the law and for federal tasks only.

The 19 Olympic Training Centres annually receive about €27 million from the Federal Government. The Centres partially used these funds improperly or inefficiently. E.g., they waived revenues by means such as commercializing their logo for advertising purposes. Such revenues could have reduced the Federal Government’s funding. The use of funds was only audited incompletely.

We urged the Federal Ministry of the Interior to only fund tasks for which the Federal Government is responsible. It should ensure that the Olympic Training Centres use all potential sources of revenues. The Federal Government’s funding is to be reduced accordingly. Furthermore, the staff of the Centres must be able to correctly apply the public procurement provisions and the law on travel expenses. In addition, we asked the Federal Ministry of the Interior to train the Olympic Training Centres’ staff and to arrange for regular and in-depth audit of the use of funds.

The Ministry wants to fund Olympic Training Centres’ federal tasks only and to ensure that all sources of revenues are used. On behalf of the Federal Ministry of the Interior, the Federal Office of Administration will regularly train the staff and carry out in-depth audits of five Olympic Training Centres each year to verify that they have complied with the budgetary provisions.

We consider these measures appropriate for funding the Olympic Training Centres properly and efficiently.

 

2014 Annual report No. 27 - Improved evaluation of grant-funding programmes

The Federal Ministry for Economic Affairs and Energy intends to incrementally improve the evaluation of its support programmes. The objectives are to sustainably enhance the quality of programme evaluation and to promote consistently high standards. For this purpose, an existing central unit will assist divisions with programme evaluation. Furthermore, the Ministry intends to use a computerised financial assistance controlling system. It promised to define the objectives of the support programmes more specifically in future and to carry out all components of programme evaluation. This approach is in line with our recommendations.

Budgetary regulations require that the Federal Ministry for Economic Affairs and Energy monitors the success of its support programmes systematically, e.g. for the Central Innovation Programme for SMEs. To do so, it has to define objectives, criteria and procedures, and, subsequently, to carry out the programme evaluation comprising the evaluation of effectiveness, outcomes and efficiency. In its support programmes, the Ministry described general objectives. There was no information on the time provided to achieve the intended objectives. The same applies for initial and target values. Programme evaluations varied considerably in their methodology and depth. The federal government department often could not demonstrate the effectiveness of a support programme.

We demanded that the support programmes’ objectives be defined in such a way as to allow programme evaluation. Furthermore, the Ministry should carry out all components of programme evaluation, applying appropriate methods. In order to support this, we suggested to pool methodological expertise concerning programme evaluation. The Ministry should formulate minimum requirements and ensure compliance with them.

The Ministry promised to improve the quality of its programme evaluations and to promote consistently high standards by using a computerised financial assistance controlling system in line with budgetary regulations. Furthermore, it founded an “evaluation quality circle” to broaden and deepen the knowledge of evaluation methods and procedures within the Ministry. According to the Ministry, its newly introduced financial assistance controlling report now provides a format for informing the management about large individual projects. Moreover, the Ministry intends to hire, subject to parliamentary approval, additional staff for the central financial assistance controlling system.

We hold that the steps initiated are appropriate for improving the evaluation of support programmes in the Federal Ministry for Economic Affairs and Energy. We intend to follow up on whether and how the Ministry complies with its promises.

 

2014 Annual report – spring report - No. 07 - Pilot projects for environmentally friendly inland shipping largely unsuccessful

The Federal Environment Ministry gave grants towards two shipbuilding projects but did not achieve the essential goals sought. One major reason for this is that the Ministry failed to identify project risks or assessed these risks inaccurately. Thus, it did not use valuable options for steering the projects.

In spite of considerable warning by experts, the Ministry gave grants towards the use of a combined exhaust gas technology not yet developed to maturity. This technology then functioned only inadequately and failed several times. The Ministry was not able to conduct the scheduled measurements to verify if the grant-funded technology was workable in practice because it had not created the necessary prerequisites. Although the purpose of the grant-funding was to make inland shipping more environmentally friendly, one of the ships navigated almost exclusively at sea and along coasts in the Mediterranean. Instead of preventing this, the Ministry even financially supported the necessary retrofitting of the vessel.

The Ministry announced its intention to arrange for better project steering. We consider this suitable first steps. In addition we expect the Ministry to consistently align its projects with the goal of the grant-funding and to take corrective action whenever something is about to go wrong. If it becomes apparent that the objective of the grant-funding cannot be accomplished, the Ministry must terminate its financial support or reduce its grants to the amount needed to meet at least those sub-targets likely to be achievable.

 

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.

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.

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. 59 - Prevention of corruption and control of the use of grant funds improved

In response to our recommendation, the Federal Health Ministry and the State of Hesse will impose effective rules designed to prevent corruption on a jointly funded research institute. Moreover, the Federal Health Ministry and the State of Hesse agreed that the latter will audit the expedient and cost-effective use of funds in line with prescribed standards.

Together with the State of Hesse, the Federal Health Ministry gives grants to a scientific research institute which tests new methods for the treatment of cancer and AIDS. Both the Federal Government and the State give institutional grants. Under the funding agreement between the Federal Government and the State of Hesse, the research institute is obliged to apply Hesse’s regulations for corruption prevention and the State has to audit the documents proving the use of the grant funds.

We found that the Hessian rules for corruption prevention are limited to an administrative regulation about accepting rewards and gifts. No obligation was imposed on the research institute to implement other important measures of corruption prevention, e.g. the transparency of contract award procedures and the rotation of staff in areas that are particularly vulnerable to corruption. The Federal Health Ministry tolerated this and did not impose regulations of its own concerning corruption prevention. Furthermore, the Federal Health Ministry had accepted that the State of Hessen had the documents proving the use of the grant funds audited by a private-sector auditor commissioned by the research institute.

The Federal Health Ministry concurred with us in that corruption prevention and the audit of the documents proving the use of funds need to be improved. Both the Federal Government and the State of Hessen will oblige the research institute to comply with the Federal Government Directive concerning the Prevention of Corruption in the Federal Administration. This Directive specifies measures of corruption prevention for all important fields of activity. Moreover, the Federal Health Ministry and the State have agreed on the provisions that apply to the member institutions of the Leibniz Association with respect to the back-up documentation of the use of grant funds. These institutions have to comply with an extensive set of standards for proving and auditing the use of funds.

 

2013 Annual report No. 49 - Federal railway authority claims the return of €2.7 million of federal funds

Based on findings developed by our audit, the Federal Railway Authority demanded a refund of a total amount of €2.7 million by the railway infrastructure companies. These used federal funds inefficiently and in violation of the relevant agreements.

The Federal Government finances the construction, upgrading of and replacement investments in its railway lines. Payments are based on project-related funding agreements with federal railway infrastructure companies. These commit themselves to using the federal funds received cost-effectively and for the purposes specified in the agreements. If the companies divert the funds to other purposes, they have to repay them.

We audited how the companies have used the federal funds. In our audit, we found that the companies had charged supplies or services twice against the funds, had funded their own planning and construction errors and procured unnecessary equipment. We alerted the federal railway authority to these shortcomings and urged it to claim the return of the federal funds used in violation of agreements.

The Authority followed our findings. It demanded that the companies repay €2.7 million. The companies have already paid back €1.5 million.

 

2013 Annual report No. 21 - Federal Office for Migration and Refugees intends to enhance effectiveness of integration courses for migrant women

The Federal Office for Migration and Refugees intends to optimise funding of integration courses for migrant women. The Office promised to examine course providers and their central offices more frequently and to check their statements of account more thoroughly. This approach is in line with our recommendations.

The Federal Office for Migration and Refugees provides average annual grants of €1.6 million to integration courses for migrant women. These courses aim at teaching participants basic German language skills and laying the ground for further integration measures.

The German SAI identified the following shortcomings:

• The Federal Office redesigned the funding programme in 2005. Since then, no evaluations in terms of target achievement have been done.

• The courses on offer did not take into account the regional distribution of the target group. In some of Germany's constituent states, it was therefore much more difficult to find a training place than in others.

• The Office failed to thoroughly supervise relevant course providers.

• The statements of account for the public funding received were not checked with due care. It thus escaped the Office's attention that one central office unduly cut the lump-sum amounts earmarked for the courses and partly pocketed the funds.

The Office promised to remedy these deficiencies. For example, it intends to determine a quota for the allocation of courses to the individual constituent states to reflect the regional distribution of migrant women. The Office is committed to carry out on-site controls of 20 per cent of the course providers as from 2014 and to evaluate the programme results achieved.

 

2013 Annual report No. 18 - Inefficient grant-funding of cultural programmes for large-scale events

The Federal Ministry of the Interior gave block grants totalling €29 million to promote cultural programmes for large-scale events. This type of grant-funding was not admissible in terms of budgetary law. It was also inefficient. Moreover, the Ministry thus incurred unnecessary financial risks. We call upon the Ministry to select funding modes in accordance with budgetary law when grant-funding projects in the future.

In the years 2006-2011, the Ministry gave grants in the total amount of €29 million towards four cultural programmes in connection with large-scale events e.g. the World Championships in Athletics or the street parties to celebrate the anniversary of German Unification. The financial support was given as block grants, i.e. the donor pays a fixed amount towards eligible expenditure. This funding mode restricts the possibility to claim the partial or complete refund of the grant, if total expenditure is lower or revenue is higher than expected. Other funding modes are deficit funding or proportional funding. Although the Ministry knew, when awarding the grant, that the beneficiaries expected funding contributions of undetermined amounts from third parties, it provided financial support in this form. This did not comply with budgetary law and also was inefficient.

The Ministry argued that, in the case of fixed-amount grants, refund claims were possible only if the eligible expenditure was lower than the fixed grant. Therefore, it had initially not thoroughly audited the proofs of expenditure because it argued that a cursory review had already shown that total expenditure would exceed the amount of the grant. We audited the supporting documents submitted by the beneficiaries ourselves. We found that the beneficiaries had not complied with specific conditions subject to which the grant had been awarded or had obtained additional revenue. As a result of one case of non-compliance with conditions for the grant, eligible expenditures were lower than the awarded grant. Therefore, the Ministry claimed the refund of €340,000.

We objected to the Ministry’s practice of giving fixed-amount grants for the cultural programmes, although it was aware, at the time when it awarded the grant, that the beneficiaries expected unspecified amounts of financial contributions from third parties. Thus, the Ministry infringed provisions of budgetary law and the principle of subsidiarity. Furthermore, it considers the possibilities for demanding refunds of grants as limited and therefore does not thoroughly audit the proofs on the use of funds. Therefore, we called upon the Federal Ministry of the Interior to give fixed-amount grants only if this is admissible under budgetary law.

 

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.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.

 

Practice Note 04/06: Project funding: distinguishing between grants and public contracts

Principles

(1) Where authorities need supplies or services from third parties for their projects, they should carefully consider whether to fund these by means of a grant or of a public contract. 

(2) To ensure efficiency and to avoid litigation risks, where appropriate, they should opt for a public contract. Such contract comes into existence where an exchange of goods or services against remuneration is intended to cover a procurement need.

Background

Each year, the Federal Government spends several billions of euros on project-funding grants. In this way, it supports a wide variety of projects (e.g. research projects, conventions or exhibitions). A grant may only be awarded where there is a considerable federal interest. The closer the federal interest is related to the tasks to be performed by the authority itself, the closer does it come to the interest in procurement, which is typical for a public contract.

In reason years, we have often addressed the fringe between grant and public contract. We conducted cross-boundary studies to ascertain whether the administration sufficiently clarified the nature of the transactions well in advance in order to rule out the applicability of public procurement rules.

(1) We found that, when deciding to found supplies or services via grants, the authorities rarely considered the option of a public contract even in cases of doubt. Even given that budgetary law does not provide unambiguous delimitation criteria, they ignored the fact that, in view of their procurement interest, the proposed transaction constituted an exchange of goods and services which would have suggested a public contract.

Furthermore, we found quite a number of cases in which a public contract awarded in line with the provisions of procurement law would have been more cost-effective than a project-funding grant awarded by the authorities. The main reason is that, in the case of a public contract, the contractor has the duty to actually deliver the goods or services stipulated in the contract. In case of a grant, the primary requirement is that the grant funds are used for the specified purposes. Where the grantee has used the grant funds for other than the specified purposes, the Federal Government may revoke the grant award fully or in part. In that case, the grantee has to refund (part of) the grant. Where, however, the grantee has used the funds in line with the specified purposes and has not infringed any other condition, a refund is ruled out even where the grant-funded project fails.

(2) In our opinion, the application of procurement law would in many cases have been the preferable option also under regularity aspects.

The requirements of EU public procurement law have been stipulated without regard to national peculiarities and therefore cannot be derogated from by choosing national forms of action, no matter if they grant awards or contracts. Key features of a public contract which is subject to procurement law are:

  • a definable performance obligation governed by the sponsor’s needs and
  • a remuneration that is largely in line with market rates.

Where these criteria are met, there is, as a matter of principle, no scope for a grant. Commercial competitors of a grantee could successfully take legal action against a decision to award a grant.

In difference to a public contract, a grant means the concession of a pecuniary benefit to accomplish a public interest objective, but such objective and the pecuniary benefits granted are reflecting a transaction outside the market place.

Notes

Following our suggestion, the supreme federal authorities’ Working Group on Budgetary Law addressed this issue on 29 August 2012. It was agreed that an exchange of goods or services against remuneration in order to meet procurement needs of the Federal Government can only take the form of a contract. It was also agreed to follow our recommendation to give greater emphasis (see Administrative Regulation no. 1.2.4 on Art. 23 Federal Budget Code) to the concept of an exchange of goods or services as the decisive characteristic of a contract.

 

Good Practice Note 04/05: Awarding of project grants to institutional grantees

Principles

(1) Where recipients of institutional grants are given project grants in addition to the former, a clear distinction must be drawn between the two types of grants. Any increase of institutional grant funding “by the back door” has to be avoided.

(2) To preclude duplication of funding and to ensure transparency, it is necessary, whenever project grants are given alongside institutional grants, to fully disclose in the funding plan all revenue and expenditure connected with the project. Any contribution margins from institutional grants, i.e. the use of spending authority under the grantee’s budget has to be disclosed in a note to the accounts.

(3) The preferable project financing mode is deficit funding.

(4) To ensure that grant funding is systematically aligned to key Federal Government interests and with regard to the grantor’s enhanced control and evaluation powers in the case of project grants, it needs to be considered whether, in suitable cases, institutional grants to a beneficiary can be reduced in favour of targeted grant funding of individual projects.

Background

(1) According to the findings we developed in 2011, recipients of federal institutional grants received additional project grants in excess of €400 million in financial year 2010. Most of the project funds were granted by the respective departments responsible for the institutional grants. In a number of cases, the grantors did not clearly distinguish between the two types of grants. We consider that such grant-funding practice implies the risk of an increase of institutional grants “by the back door”.

This must be avoided especially with regard to the requirement of budget transparency and Parliament’s power to control the budget.

(2) Administrative regulation No. 3.2.1 on Art. 44 Federal Budget Code absolutely requires that a funding plan must be submitted together with every project application. Such plan must show all expenditure connected with the purpose of the grant and the intended funding. This also applies to project grants that are awarded on top of a standing institutional grant. In such cases, it is therefore required to identify the total expenditure on a project and to explain its funding. To ensure transparency and preclude duplication of funding, the funding plan must clearly set out the financial linkage between institutional grants and project grants. Any contribution margins generated from institutional grants, i.e. the use of spending authority under the grantee’s budget have to be disclosed in a note to the accounts.

(3) Where an institutional grantee also receives project grants, this provides an opportunity to effectively use the grantee’s infrastructure and expertise for implementing an additional project in which the Federal Government has a significant interest. In such a constellation, it is always necessary to bear in mind that the basic funding of the grantee is already ensured by the institutional grants. Against this background, deficit funding is the preferable form of project funding.

(4) According to administrative regulation No. 2.2 on Art. 23 Federal Budget Code, institutional grants serve to cover a grantee’s total expenditure or a non-segregated part of a grantee’s expenditure. Thus, the respective grants are not allocated to an individual defined project but to the institution as such. Institutional grant funding is always planned to be given for a certain period of time. In contrast, project grants relate to individual projects defined in terms of duration and content. Institutional grant funding is rather in line with an overall purpose, i.e. supporting the entity as such. In the case of project grants, however, a decision is required in each case about the specific measures to be implemented by the grantees with what input of resources and for what purpose. The grantor’s resulting controlling and evaluation powers permit a precise alignment of the funded measures to the federal interest and to evaluate their results. In suitable cases, the grantor should therefore seek to target the institutional grant funds more strongly to the administrative core functions of the grantee (basic funding) and to ensure any additional funding of the total expenditure directly imputable to an individual project by means of project grants.

Notes

By letter of 8 March 2012, the Federal Ministry of Finance referred to our audit findings and asked the supreme federal authorities “to ensure, in the course of the annual verification as to whether there remains a considerable federal interest in grant funding a given activity, an unambiguous classification of the grantee’s clearly defined tasks as basis for choosing the type of grant, thereby avoiding an increase of institutional grants “by the back door” or a “duplication of funding”. Moreover, in cases where grants are being paid it requested to consider “whether it is possible to replace the institutional grants or parts thereof by project grants”.

Furthermore, the supreme federal authorities’ working group on budgetary law dealt with this issue at its meeting of 29 August 2012 and put the following declaration on record:

“Where an institutional grantee additionally receives project grants all the revenues and expenditures connected with the project have to be disclosed in the funding plan (administrative regulation No. 3.2.1 on Art. 44 Federal Budget Code). This also applies to any share funded from institutional grants, which must be disclosed as an addendum to the funding plan and the project funding expenditure already authorised under the grantee’s budget.”

 

Good Practice Note 04/04: Circumvention of public grant law: provision of funding through shareholder contributions

Principles

(1) Companies in which the Federal Government is a shareholder may receive various payments from the Federal Government. Such payments can be broadly classified either as such which the Federal Government makes as a shareholder of a company (payments under company law) or as grants within the meaning of Arts. 23 & 44 Federal Budget Code.

(2) A complete and permanent funding of institutions by means of non-controllable (as to amount and timing) shareholder contributions under private law in the form of payments into the capital reserve pursuant to Art. 272.2 item 4 Commercial Code contravenes the requirements for a Federal Government shareholding laid down in Art. 65 Federal Budget Code. Such funding moreover constitutes a circumvention of the law on grants.

Background

In the course of realignment in one area of financial assistance, a line department intended to set up a new limited liability company. The department envisaged permanent and full funding of the company “by means of non-controllable shareholder contributions in the form of a cash payment into the company’s capital reserve pursuant to Art. 272.2 item 4 Commercial Code”. The legal basis for such cash payments was to be a funding agreement to be conducted between the shareholders and the company. The department justified this form of funding with the need for high flexibility and giving the company the necessary leeway as to organisational, human resources and operational planning. The department argued that it was necessary to enable the company to respond flexibly to market conditions and customer needs. To that end, the company should be able to pay salaries comparable to those paid for similar work in the private sector. One of the reasons stated by the department for not providing funds via institutional grants was that the intended shareholder contributions to the company did not constitute payments to a “third party”, i.e. an entity outside the federal administration.

(1) Payments under company law include the subscription of shares (acquisition of shareholdings within the meaning of Art. 65 Federal Budget Code) or additional payments made by the Federal Government into a company’s equity capital. The capital can take the form of a Federal Government payment into the company’s capital reserve (Art. 272.2 item 4 Commercial Code), e.g. to avert insolvency or to ensure higher credit lines. However, payments made by the Federal Government as a shareholder to compensate for a materialised or expected deficit or for certain expenditure cannot be recognised as a contribution to the capital reserve. This applies the more so where such payments regularly made as “income subsidies” which do not serve to increase share capital but are consumed by the company’s current losses. The arrangement envisaged by the department does in fact contravene Art. 65.1 item 2 Federal Budget Code. Art. 65.1 item 2 requires that the Federal Government’s obligation to make payments to the company is limited to a specified amount. It is true that the proposed arrangement with the company does not constitute an “obligation” in the legal sense. Factually, however, the company’s financial capacity to act – and thus its ability to perform the task which is a major concern of the Federal Government – can only be ensured by annual income subsidies from the Federal Government.

 

(2) Apart from contravening the requirements for a Federal Government shareholding laid down in Art. 65 Federal Budget Code, full and permanent funding of the company by means of income subsidies also circumvents the law on grants. In the present case, the arrangement had the typical characteristics of institutional grant funding pursuant to Arts. 23 & 44 Federal Budget Code.

The concerns raised as to an impediment to the company’s ability to act flexibly are unfounded. The provisions of the law on grants give discretionary scope for responding to special situations. As to salary structures, Art. 8.2 of the annual Budget Act and administrative regulation No. 15.1 on Art. 44 Federal Budget Code give an option, in exceptional cases, to permit, in agreement with the Federal Ministry of Finance, salaries higher than those laid down in the collective agreement for the public service and other employee benefits even outside the stipulations in the collective agreement.

Contrary to the opinion of the line department, a “third-party relationship” exists between the Federal Government and the company, since the company is an entity outside the federal administration. Apart from this, the funding of companies within which the Federal Government is a shareholder by means of institutional grants is a practice justified by administrative regulation No. 15.5 on Art. 44 Federal Budget Code.

Notes

We summarised our opinion in a report submitted to the line department and the Federal Ministry of Finance pursuant to Art. 88.2 Federal Budget Code. The Federal Ministry of Finance eventually accepted our arguments, classified the entity in question as a recipient of institutional grants and, on this basis, budgeted the payments in question accordingly.

 

2013 Annual report – spring report - No. 04 - Need to avoid unnecessary interest expenditure for building subsidies

The Federal Transport Ministry gives annual lump-sum grants of €2.5 billion to Deutsche Bahn AG for the replacement of railway infrastructure assets without making sure that the Federal Government does not incur unnecessary interest expenditure.

Where beneficiaries receive federal grants in excess of €500,000, they are responsible under budgetary law for requesting the funds from the relevant federal cash office on the day when the funds are needed and only to the extent that they need them to meet their own payment obligations (funding request procedure). Exceptions from this procedure are admissible where there are special reasons for doing so or where following the procedure may cause disadvantages for the Federal Government. Based on the respective Service Level and Funding Agreement, Deutsche Bahn AG receives amounts of €150-250 million on the 15th day of each month up to €2.5 billion annually by way of lump-sum payment. The normal procedure for requesting funds is not applied to these lump-sum payments. In case of other construction projects, Deutsche Bahn AG applies the procedure in order to request funding under federal grants.

According to their own statement, neither the Federal Transport Ministry nor the Federal Finance Ministry have an overview when Deutsche AG actually uses these lump-sums to make due payments to its contractors. Lump-sum payments imply the risk that the federal budget is charged prematurely. This is the case where, on the day when the grant funds are disbursed, Deutsche Bahn AG does not need funding in the requested amount to meet its own payment obligations for the replacement of railway infra-structure assets. The disbursement of federal grant funds before they are actually needed results in unnecessary interest expenditure for the Federal Government, because the disbursements need to be refinanced in the credit market. Building subsidies under the Service Level and Funding Agreement are the individual federal grant item so that unnecessary interest expenditure in the range of millions is already incurred, if Deutsche Bahn AG uses the funds only ten days after it requested the disbursement.

The Federal Transport Ministry and Deutsche Bahn AG rejected the normal procedure for requesting funds under the Agreement. The Federal Transport Ministry is of the opinion that the risk of unnecessary interest expenditure due to premature funding requests has not existed so far. The procedure used up to now could also be beneficial to the Federal Government.

In our opinion, there is no sufficient information that would warrant derogation from the normal procedure for requesting funds. Therefore, the Federal Transport Ministry should insist on the standard procedure for requesting funds when conducting follow-up negotiations about the said Agreement.

 

Good Practice Note 04/03: Allocation of grant funds for discretionary use

Principles

(1) Where funds have been appropriated for discretionary use, this means spending authority available beyond the current financial year. An estimation of funds for discretionary use is admissible only where there is proof that this will promote economic fund management.

(2) Authorising discretionary use of funds impairs major budgetary principles that underpin Parliament’s control of the budget and the steering and control mechanisms for budget implementation. In our view, appropriating funds for discretionary use is an option that should only be used for strictly limited areas in exceptional cases.

(3) The authority to make discretionary use of funds contravenes fundamental principles of the law of grants. Therefore, we consider the authorisation of discretionary use of funds as particular problem.

(4) The primary objective of authorising the discretionary use of funds, which is to extend the spending authority beyond the current financial year, can also be achieved by making the funds in question eligible for carry-forward. If this option is chosen, the disadvantages involved in authorising the discretionary use of funds may be avoided.

Background

Over the last two decades, the mechanism of authorising the discretionary use of funds – embodied in article 16 of the Reich Budget Code – which traditionally was applied in the fields of internal and external security has meanwhile acquired increasing importance in other fields such as the promotion of culture and research. According to the provision found today in article 15 (2) sentence 1 Federal Budget Code, appropriating funds for discretionary use only requires that this will promote economic funds management. As a result of the fact that spending authority for discretionary use extends beyond the current financial year (article 15 (2) sentence 2 Federal Budget Code), funds whose discretionary use is authorised have accumulated in the various policy fields, reaching a total amount of nearly €1 billion as of 31 December 2011.

(1) The amount of budget funds for which discretionary use is authorised has increased considerably since the mid-1990s. While, up to then, such funds were in the range of tens of millions of euros, the 2012 federal budget has authorised the discretionary use of budget funds in the total amount of €1.8 billion. The government departments mainly point out that savings of interest expenditure in the federal budget could be achieved by carrying forward to the subsequent year unused funds for which discretionary use has been authorised. This argument appears hardly convincing as proof that economic funds management is promoted by such arrangement. This is so because underspending in one year can also be the consequence of excessive expenditure estimates not in line with actual needs. In our opinion, the Legislature’s objective linked to the mechanism permitting the discretionary use of funds is rather to prove any savings effect by means of robust effectiveness audits. It is necessary to take regard to the fact that, pursuant to article 7 (1) Federal Budget Code, financial managers have to make efficient and economic use of budget funds, which means that additional efficiency gains need to be achieved by the discretionary use of funds.

(2) Applying the authority to make discretionary use of funds touches on fundamental budgetary principles. Moreover, using this mechanism encroaches on Parliament’s right to control the budget and diminishes the ability of the Federal Ministry of Finance to steer budget implementation. The overall system of budget law implies that the discretionary use of funds should be permitted only in strictly limited areas. The following aspects are relevant in this context:

  • In derogation from the principle of annual budgeting (article 110 (2) German Constitution, article 11 (1) Federal Budget Code) and the derived principle of time-limited spending authority (article 45 (1) Federal Budget Code), spending authority for the discretionary use of funds is available beyond the current financial year. Although funds appropriated for discretionary use are booked as expenditure already when they are allocated, the respective cash flows may take place only years afterwards. Accordingly, the amount of the cash actually disbursed is neither stated in the budget account of the closed financial year nor the budget accounts of subsequent years. This diminishes the information value of the accounts rendered to Parliament (Art. 114.1 German Constitution). Due to the fact that the funds appropriated for discretionary use remain available without any time limit, they can acquire the character of ‘permanent funds’ parallel to the budget funds appropriated by Parliament for the current financial year, thus impairing the single budget principle (Art. 110.1 German Constitution).
  • Under the discretionary use arrangements, revenues flow directly into the funds for which discretionary use is authorised. This contravenes the gross estimating principle (Arts. 15.1, 35.1 Federal Budget Code) and the principle that all revenues are available to meet all expenditures (Art. 8 sentence 1 Federal Budget Code). It is also a problem that budgetary action – e.g. blocks on expenditure pursuant to Art. 41 Federal Budget Code – becomes ineffective with respect to the discretionary funds booked as expenditure, thus curtailing the tools available to the Federal Ministry of Finance for controlling budget execution.
  • Moreover, an incentive is created for budgeting discretionary use funds which are likely not to be spent during the financial year for which the budget is drawn up. This contravenes the principle laid down in Art. 11.2 Federal Budget Code according to which expenditure should only be estimated, if it is likely to result in an outflow of cash during the financial year in question. Funds budgeted for discretionary use remain available without any time limit.

 

(3) Apart from infringing general budgetary principles, authorising expenditure for discretionary use contravenes fundamental principles of the law of grants. In particular, these principles include:

  • reduction of the grant, if the grantee obtains additional other revenue (item 1.2 ANBest-I/P of administrative regulation no. 2.2.3 on Art. 44 Federal Budget Code);
  • obligation of grantee to comply with the operating or financing plan (item 1.2 ANBest-I/P);
  • prohibition to accumulate reserves (item 1.8 ANBest-I);
  • authority to spend the grant funds is limited to the period for which the grant has been awarded (administrative regulation no. 4.2.5 on Art. 44 Federal Budget Code).

 

(4) The main objective of budgeting funds for discretionary use, i.e. making the funds available beyond the current financial year may also be achieved by making the funds eligible for carry-forward (pursuant to arts. 19 & 45 Federal Budget Code). By choosing this option, due regard is taken to both Parliament’s power to control the budget and the need for tools to control budget execution. As compared to budgeting funds for discretionary use, making funds eligible for carry-forward – a tool already used for giving greater flexibility in the management of administrative expenditure – has the following merits:

  • Permitting carry-forward only touches upon the principle of annual budgeting while fully complying with the principles of gross-estimating and overall coverage.
  • Where unexpended balances are formed, the related spending authority expires always at the end of the second financial year following their authorisation in the budget. This precludes an unlimited increase of extra budget funds.
  • Both the undisbursed funds and the unexpended balances formed from them are recorded in the accounts. Transparency and validity of the budget account is not impaired.
  • Moreover, tools for controlling budget execution (e.g. blocks on expenditure pursuant to Art. 41 Federal Budget Code) apply to funds eligible for carry-forward.

Except where they come under devolved financial management, the Federal Ministry of Finance always makes its consent to the use of unexpended balances contingent upon spending reductions in the same amount to be achieved by the department drawing on the unexpended balance. However, pursuant to Arts. 19.2 & 45.3 the requirement to compensate for the use of unexpended balances by spending reductions elsewhere in the departmental budget does not apply where expenditure sufficient to cover the unexpended balances has been budgeted. A budget title to this effect is found under chapter 6002 title 971 02 – funds available for covering unexpended balances. It serves as a provision for covering the unexpended balances related to administrative expenditures that come under devolved financial management. In our opinion, this is an option worth to be considered as an alternative to budgeting funds for discretionary use. Under that option, Parliament’s power to decide about the funds to be budgeted as coverage would be preserved. If Parliament so decided, Government departments would not lose any funds by prescribed spending cuts.

Notes

In our report on funds appropriated for discretionary use, especially in the field of federal funding for the promotion of culture (chapter 40 05), submitted to Parliament’s Budget Committee pursuant to Art. 88.2 Federal Budget Code, we pointed out this type of spending authority.1 The Federal Government also opposes any extension of spending authority for discretionary use. In its reply2 to a minor interpellation about tax law and law on grants in relation to civic engagement by volunteers and non-profit organisations,3 government admitted that, due to the inherent infringement of the principal of annual budgeting, spending authority for discretionary use encroaches upon Parliament’s power to control the budget.

1 Cf. report of 24 October 2008 (Budget Committee Paper 16/4763)

2 Cf.gl. Parliamentary Paper 17/4328, reply to question 12

3          Minor interpellation of Members of Parliament Ute Kopf, Petra Heinz (Essen), Petra Ernst Berger, further MPs and the SPD parliamentary group (Parliamentary Paper 17/4080).

 

Moreover, the Federal Ministry of Finance emphasises, in its annual circulars on drafting the budget, that budgeting funds for discretionary use is only a valid option where there is proof that this type of spending authority promotes the economic management of funds and where this objective cannot be accomplished in any other way. The States of Bavaria and Baden-Württemberg have abolished spending authority for discretionary use in their respective budget regulations.

 

Good Practice Note 04/01: Classification of direct payments from the EU as “government grants” and area of application of the ban on more favourable treatment in connection with project grants

Principles

(1) Payments from the EU in the nature of aid which are received by beneficiaries without being channelled through the federal budget or state budget have to be considered as “government grants” within the meaning of Art. 8.2 sentence 2 Budget Act / item 1.3 of the Auxiliary Terms and Conditions for Project Grants.

(2) If, in connection with project grants, most of a grantee’s total expenditure is funded from government grants including direct payments from the EU, the grantee has to comply with the ban on more favourable treatment.

Background

Pursuant to a provision in the annual Budget Act,1 project grants to grantees most of whose total expenditure is funded from government assistance may be awarded only subject to the condition that the grantee does not concede to its employees better terms of employment than those of comparable Federal Government employees. This permanent provision of budgetary law known as “ban on more favourable treatment” is detailed under item 1.3 of the Auxiliary Terms and Conditions for Project Grants. According to administrative regulation no. 5.1 on Art. 44 Federal Budget Code, incorporating this provision into the grant award notice remains obligatory.

(1) There is no legal definition of the term “government”. The relevant provisions of both the Budget Act and the Auxiliary Terms and Conditions for Project Grants are not explicit as to whether direct payments from the EU to recipients of (German) federal and/or state grants are to be considered as government grants. Our opinion in this matter is as follows:

The concept of “government” comprises the entire public sector, i.e. federal, state and local government, social insurance bodies and other bodies incorporated under public law. According to this definition, the EU, being a confederation of states, would not be included. Also, unlike national and sub-national governments, the EU may not levy taxes or similar charges.

On the other hand, the EU is funded from Member State resources; i.e. the EU budget is financed from public funds. Based on the EU’s financial and budgetary regulations, its budget is a public budget and thus comparable to the federal budget and the state budgets. Moreover, it needs to be taken into account that – deviating from Art. 24.4 Federal Financial Regulations, the Federal Budget Code – the Legislature, in Art. 8.2 sentence 2 Budget Act, has not explicitly restricted the imputation of grants to federal, state and local government. Accordingly, it appears appropriate to generally classify EU payments made to the beneficiaries directly without being channelled through a federal or state budget (direct payments) as “government grants” within the meaning of Art. 8.2 sentence 2 Budget Act / item 1.3 of the Auxiliary Terms and Conditions for Project Grants. However, this classification can only apply to payments from the EU budget to which the beneficiary does not have a legal claim before the grant is awarded and which the EU makes proactively for accomplishing certain objectives. This means that the EU payment must be in the nature of a grant within the meaning of Arts. 23 & 44 Federal Budget Code.

(2) Where, under project funding, a grantee’s total expenditure is mostly funded from government grants including EU direct payments, the grantee has to comply with the ban on more favourable treatment laid down in Art. 8.2 sentence 2 Budget Act.

Notes

The joint federal/state working group on budgetary law and the budget system concurs with our opinion in this matter.

 

1For the 2012 Federal Budget: Art. 8.2 sentence 2 Budget Act 2012.

 

2011 Annual report No. 82 - Economic stimulus programme: Construction projects often do not meet actual needs and are carried out inefficiently

Government stimulus programmes aiming at supporting construction projects are hardly suitable for swiftly boosting the building sector as such projects require extensive planning. Due to tight deadlines, construction projects involve the risk that bodies responsible are not able to prove the need for implementing such projects in a proper and timely manner and to reasonably appraise the projects’ efficiency. Moreover, it could not be ensured that a 2009-2011 economic stimulus programme led to the maximum benefit for Government as expected by Parliament.

The Federal Ministry of Transport, Building and Urban Development was responsible for managing €500 million of the audited programme “Fundamental reconstruction and energy-efficient renovation of buildings” that formed part of the second economic stimulus programme.

We are of the opinion that the economic impact of spending the funds was only modest because such funds had not been spent quickly enough and had also been used to finance non-additional measures.

Furthermore, the Federal Ministry of Transport, Building and Urban Development ignored the objective of achieving the maximum benefit for a given level of expenditure. The Ministry argued that it was not able to pursue this objective due to a lack of time and methods. As a consistent, effective and continuous energy management had not yet been in place, the Ministry did not have the required data. As a result, it will be (nearly) impossible to provide evidence for a permanent relief of the federal budget that is attributable to the programme. Similar difficulties will arise in proving a permanent reduction in costs caused by climate change and carbon dioxide emissions.

The Federal Ministry of Transport, Building and Urban Development acknowledged shortcomings in implementing this economic stimulus programme, pointing out, however, that its decisions were based on expediency particularly in order to ensure that the programme’s funds were fully spent. Due to extremely tight deadlines, the Ministry had to tighten existing procedures and to make them more flexible. Therefore, the efficiency of measures could only be appraised at a later stage of construction planning and the need for such measures could, to some extent, only be proven upon completion.

The comments of the Federal Ministry of Transport, Building and Urban Development support our findings.

 

2011 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.

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.

 

2011 Annual report No. 71 - Federal Government pays associations €0.9 million annually too much for reimbursing personnel costs

Since 2001, the Ministry has given inadmissibly high grants to the umbrella organisations of entities that deliver child and youth welfare services; in 2012, it awarded grants of €900,000 too much. It reimburses the full amount of personnel costs, although it is authorised to base the amounts of its grants only on 80 per cent of the personnel cost rates. By doing so, the Ministry disregards the objectives of a resolution adopted by the German Parliament’s Budget Committee and infringes its own directives.

In 1999, the German Parliament’s Budget Committee had decided to reduce the volume of federal block grants. This was to limit permanent claims to grant funding and thus also the long-term commitment of federal budget funds. The funds thus released should be flexibly focused on issues of major importance.

In 2001, the Ministry changed its mode of grant funding of the umbrella organisations of entities engaged in the delivery of youth welfare services. The Ministry concluded grant-funding agreements with the umbrella organisations under which it committed itself to giving grants towards those organisations’ personnel costs. In its directives, the Ministry has stipulated that it will pay grants amounting to 80 per cent of the applicable personnel cost rates. The Ministry does not apply this provision. Instead, it promised the grantees to reimburse 100 per cent of the personnel cost rates.

The reimbursements of personnel costs by the Ministry are excessive. They may not exceed the percentages stipulated in the Ministry’s own directives. The Ministry’s grant-funding practice contradicts the intention of the resolution adopted by the Budget Committee. By its current practice, the Ministry has only formally implemented the shift from block grants to project-related grants; it does not exploit the potential for improving efficiency.

The Ministry should terminate the grant-funding agreements and reimburse no more than the percentage of the organisation’s personnel costs which has been determined in the directives.

 

2011 Annual report No. 70 - Funding of students’ associations under Federal Children and Youth Plan illegal

The Federal Ministry for Family Affairs, Senior Citizens, Women and Youth gives grants of €275,000 annually to three students’ associations from funds appropriated under the Federal Government’s Children and Youth Plan. By doing so, it infringes a directive which it has promulgated itself, which rules out grants that mostly serve to promote higher education.

The Ministry promotes the activities of youth associations pursuant to the Eighth Book of the German Social Code (Child and Youth Welfare) and the Directive on the Federal Children and Youth Plan. This Directive rules out promotional measures that, in terms of their content, methodology or structure are mainly addressed to higher education studies. Nevertheless, the Ministry continued to give grants of €275,000 annually to three students’ associations.

We audited the Ministry’s grant funding of the students’ associations. In particular, we examined the payments to one students’ association and found that the activities of this association largely addressed issues of higher education policy.

We held that the Ministry is not authorised to give grants to the students’ associations. Doing so infringes the Ministry’s own Directive.

The Ministry intends to continue the grant funding of the three students’ associations, arguing that the activities of the association on which our audit focused came within the field of child and youth welfare. Moreover, the Ministry drew our attention to changes in and the realignment of the association’s activities in accordance with the Directive. In response, we complemented our audit by examining the organisational changes and the realignment of the association’s activities. The findings we generated did not indicate any change in the factual situation.

We uphold our recommendation of discontinuing the grant-funding of the three students’ associations.

 

2011 Annual report No. 59 - Lacking effectiveness of the resources allocated to voluntary reservist work

The Federal Defence Ministry pays grants to an association to fund voluntary reservist work. While the association evaluates the success of its activities, the Ministry does not know the criteria on which such evaluation is based. In 2003, the Ministry had pledged to do appropriate programme evaluations. The progress made since then is insufficient.

The Federal Defence Ministry gives grants of €14 million annually to an association that discharges functions of voluntary reservist work under general guidance from the Ministry. The association is a mediator between the Armed Forces and society. The association organises events through which it imparts knowledge in the field of security policy and promotes the development of military skills. As early as in 2003, we found that the Ministry inadequately monitored the success of the association’s work. At that time, the Ministry had promised to introduce programme results evaluations and, in particular, to commission the association to carry out such evaluations itself.

In the course of a follow-up audit conducted in the years 2011 and 2012, we found that the Ministry restricted its oversight activities to issuing general guidance to the association and to sending Ministry representatives to selected events. While, in the meantime, the association carried out results evaluations for its events, the Ministry was unable to retrace the evaluation process and thus also unable to conduct a substantive evaluation of its own. Neither did the reports of its representatives contain any information significant for such evaluation. As a result, the Ministry still did not know enough about the reservist work for which it gave grants. To make more informed decisions, the Ministry would have had to evaluate target achievement and the expediency of the association’s event by means of criteria derived from the Ministry’s grant-funding objectives. Only thus would the Ministry have been able whether and in what way it needs to align and support the association’s reservist work to better meet its objectives. This is of special significance against the background of structural changes in the Armed Forces and the increasingly important role of reservists. We uphold our opinion that the Ministry needs to get a clear picture of the effectiveness of voluntary reservist work.

 

2011 Annual report No. 55 - Rules adopted to accelerate federal construction projects and those eligible for grants are effective only to a limited extent

The Federal Ministry of Transport, Building and Urban Development temporarily introduced simplified administrative procedures in order to accelerate the federal building construction projects and those eligible for grants. However, this measure only had a positive effect on some projects. In the case of construction projects eligible for grants, the quality of reference documentation was adversely impacted by the fact that building authorities had not been involved.

Under the “Pact for Employment and Stability in Germany to Safeguard Jobs, Strengthen the Forces for Growth and Modernise the Country” the Federal Ministry of Transport, Building and Urban Development was required to simplify the implementation of federal building construction projects and those eligible for grants, ensuring that funds were targeted effectively as quickly as possible. This step aimed at both construction projects for which Federal Government provided additional funding and all other construction projects. To comply with the requirements, the Ministry increased the cost limit, beyond which construction projects have to be approved by the Federal Ministry of Transport, Building and Urban Development or the Federal Ministry of Defence, from €1 million to €5 million. It also allowed construction projects eligible for grants receiving federal and state grants of up to €5 million in aggregate to be implemented without involving building authorities provided that the beneficiaries had sufficient expertise to carry out such projects.

We found that approved reference documentation often did not meet the minimum requirements for appropriately assessing construction costs. The documentation did not include, for example, statements on the intended use and expected costs of use, space requirement plans or capital expenditure appraisals. In addition to that, the quality of reference documentation relative to construction projects eligible for grants was adversely impacted since they lacked review by building authorities. The procedural changes often even caused delays in implementing federal construction projects. Where the approval process for reference documentation had been speeded up successfully this was, in our opinion, attributable to

• the tight time frame set to spend the additional funds,

• the temporary nature of the procedural simplification and

• the concentration of all efforts on handling such cases.

Therefore, a permanently increased cost limit is unlikely to lead to accelerating construction projects in the long run. Furthermore, the significantly lower quality of reference documentation is not acceptable as this will probably cause a considerable increase in expenditure on public construction projects.

We recommended that, in the case of federal construction projects totalling between €1 million and €5 million, the bodies responsible should not so often refrain from having the reference documentation reviewed and approved by the highest technical authority.

The Federal Ministry of Transport, Building and Urban Development will take into account our findings and recommendations when deciding on a permanently increased cost limit applicable to federal construction projects and those eligible for grants.

 

2011 Annual report No. 40 - Federal Government received a €1.1 million refund for reused rails

A railway infrastructure company used rails paid for by the Federal Government for projects which it had to finance from its own resources. Only after we had pointed this out did the company refund €1.1 million to the Federal Government. This amount is equivalent to the value of the rails plus interest.

The Federal Government finances the replacement of capital assets, the new construction and the upgrading of its Track, while the maintenance of the Track from its own resources is incumbent on a federal railway infrastructure company. The Federal Government and the company agreed to reuse dismantled rails wherever possible. If the Federal Government has paid for these rails, the company is to reuse them primarily for producing or replacing capital assets. If the company uses these rails for maintenance, it is obliged to refund the value of the rails to the Federal Government.

We audited whether the company reused rails paid for by the Federal Government in compliance with agreement. We found that the company had reused more than 40 km of such rails for maintenance purposes without refunding the value of the rails to the Federal Government. We called the attention of the Federal Railway Authority to this issue and demanded that the Authority demand the company to refund the value of the rails.

The Authority followed our recommendations by asking the company to refund the value of the reused tracks plus interest. In response, the company paid a total amount of €1.1 million to the Federal Government.

 

2011 Annual report No. 39 - Grants towards rail power systems may impose additional burden on federal budget

The Federal Transport Ministry decided to award grants towards the construction of rail power systems. Up to now, the financing of such installations was incumbent on a railway infrastructure company. The Ministry did not analyse the need for financially supporting this company and how doing so will affect the federal budget.

The Federal Government invests in the replacement, construction and upgrading of its Track. For this purposes, it awards federal budget grants to the federal railway infrastructure companies. By virtue of a service level and funding agreement, the companies receive an annual lump-sum of €2.5 billion from the Federal Government. The agreement also stipulates for which railway installations the funds are to be used. At present, the Ministry is negotiating a new service level and funding agreement which is to come into force in 2014.

A company supplies traction power for the railway lines. To do so, it transforms electricity normally supplied to private households into traction power by means of central converters. Depending on their size, such rail power systems cost between €25 and €40 million. To avoid an inappropriate burden on the federal budget, these systems had to be funded by the companies since 1997. In 2012, the Ministry had decided to award grants towards the construction of central converters under the new service level and funding agreement. This decision took neither the company’s interest nor its financial strength into account thereby infringing principles of budgetary law (subsidiarity). Nor did the Ministry assess the bearing of its decision on the federal budget. However, this is an important factor for the negotiations about the new service level and funding agreement because the grants towards central converters could be used as an argument for increasing the funding under the agreement, thereby either burdening the federal budget or ‘crowding out’ capital expenditure on replacements.

We pointed out the Ministry’s decision because it did not comply with the principle of subsidiarity. The company is still capable of funding central converters on its own. We expect the Ministry to clarify these aspects and to study the financial impact before it commits itself under the service level and funding agreement.

 

2011 Annual report No. 38 - Due to inadequate control, the Federal Transport Ministry has paid €3.6 million too much in remuneration for a promotional programme

The KfW Banking Group received €3.6 million too much in remunerations from the Federal Transport Ministry. It has promised to return this amount plus interest. It also promised that, in future, it would calculate its remunerations according to the method agreed with the Federal Transport Ministry. In turn, the latter has announced that it will examine the future remuneration calculations of KfW Banking Group more thoroughly.

Since the end of 2007, the Federal Transport Ministry has awarded grants towards the procurement of particularly low-emission utility vehicles. It commissioned KfW to take charge of technical and administrative programme implementation. The details of programme delivery were laid down in a contract between the Ministry and KfW. This contract includes a provision governing the calculation of KfW’s remuneration. The calculation will be based on the purchasing costs of the vehicles for which KfW has paid out the grants. This means: the higher the purchasing costs, the larger KfW’s remuneration. KfW calculated its remuneration on a quarterly basis and invoiced it to the Ministry. The latter did not thoroughly examine KfW’s remuneration invoices but limited its review to plausibility checks.

We found that KfW had not calculated its remuneration in accordance with the method stipulated in the contract. KfW based its calculation on the expected aggregate purchasing costs for the low-emission utility vehicles. However, for various reasons, the applicants for grants bought a smaller number of vehicles than originally planned. The calculation of the remuneration on the basis of expected rather than actual purchasing costs resulted in excess payments to KfW of €3.6 million during a period of slightly more than two years.

KfW acknowledged the excess payment identified through our audit. The Ministry informed KfW that it would set off the excess payments of €3.6 million plus interest against outstanding remuneration claims. Moreover, it announced that, in future, it would review the remuneration invoices more thoroughly.

 

2011 Annual report No. 15 - Financial support for an ethnic German Community abroad

The Ministry will improve the effectiveness of financial support for an ethnic German Community abroad. In particular, it will review the use of the grant funds and the impact of the funding. To this end, the Ministry intends to require the community’s umbrella organisation to submit more precise funding applications and proofs of the use of funds. Furthermore, it intends to set specific goals to be achieved by means of the grant funds. The Ministry intends to ensure that the umbrella organisation will optimise its administrative procedures and its use of premises.

The Ministry gives grants of €8.7 million annually towards the cultural and social activities of the umbrella organisation of an ethnic German minority abroad including the organisation’s facilities.

We found that the Ministry awarded grants although the annual grant applications did not specify the cultural and social activities proposed not associated expenditures. The Ministry did not require the umbrella organisation to submit full proofs of the use of grant funds. It therefore did not have an overview of the activities carried out in the past financial year and was unable to verify the appropriate use of the federal funds. Neither in the funding concept nor in the annual grant award notices did the Ministry set measurable targets for grant funds used. Nor did it verify and document whether grant-funding was successful. Moreover, it did not sufficiently assist the umbrella organisation with its efforts to streamline administrative operations of its facilities and to share premises.

The Ministry committed itself to implementing our recommendations. To do so, the Ministry intends to specify the targets of grant-funding and monitor its success. Moreover, it intends to analyse administrative procedures in the ethnic German community’s institutions and develop proposals for best practice.

 

2011 Annual report No. 10 - Funding of German partner schools abroad need to be modified

At present, the Federal Foreign Office gives grants to many more German partner schools abroad than originally envisaged. This resulted in an increase in expenditure from €173 million to €255 million during the last five years. The Office gave priority to the quick expansion of the partner school network over making the necessary changes in funding procedures.

One major focus of the Office’s cultural relations and education policy is the promotion of German partner schools abroad. These teach the German language and are tasked to foster a lasting interest for Germany. Since 2008, the German Parliament appropriated up to €46 million annually (without building projects) in order to increase the number of partner schools from 557 to 1,000. However, the Office increased the number of partner schools that received grants to more than 1,500. As a consequence, expenditures have increased by 82 million since 2007.

We pointed out that the Federal Foreign Office did not give timely warning of the considerable expenditure increase. We urged the Office to respect appropriation limits imposed by Parliament and to identify and properly budget long-term funding needs of partner schools.

Furthermore, we objected to the Office’s practice of determining the size of the grants without reference to the schools’ actual revenues and expenditures. Thus, schools received grants in excess of their actual needs. Grants were even given to schools whose budgets were balanced by own resources and funding from third parties. We also are of the opinion that a number of schools could increase their tuition fees, especially since the fees are partly significantly lower than the fees charged by the schools of other countries.

Finally, we found that the Office pays German teachers who give classes at partner schools not only the applicable basic salary but also expatriation allowance and up to 15 one-off or recurring bonuses. This causes unnecessary administrative burden and is not unobjectionable in legal terms. We recommend that, in future, the German states continue to pay teachers’ domestic salaries and that the Federal Foreign Office reimburse the states for these payments. Furthermore, the Office should, as far as possible, amalgamate the bonuses and apply a flat rate to determine their amounts.

 

2011 Annual report No. 08 - Improper application of labour law and collective agreements with unions: Oversight over cultural institutions is tightened

In response to our recommendation, the Federal Government Commissioner for Cultural Affairs and the Media tightened oversight standards for his grantees. Thus, he/she has developed oversight function from incident-related response in individual cases to proactive steering.

The Federal Government Commissioner for Cultural Affairs and the Media gives grants to cultural institutions in the capital, historical museums and memorials. Depending on their legal form, these institutions come under the Commissioner’s legal supervision or are audited by him/her in his/her capacity as grant-awarding authority. They always have to apply the collective agreements made with unions by the Federal Government or at least have to apply these agreements as a yardstick.

When auditing various grantee institutions, we found similar weaknesses in the application of the relevant provisions of labour law, collective agreements with unions and budgetary law. Therefore we audited the way in which the Commissioner discharged oversight functions vis-à-vis the grantee institutions.

Our audit has revealed that the relevant units of the Commissioner’s Office frequently lack the necessary special expertise and information about the status and quality of mission performance in the human resources management units of the grantees. Furthermore, the Commissioner had not always laid down unambiguous guidance as to the allocation of remits and the procedures within his/her Office.

In response to our recommendation, the Commissioner will strengthen preventive oversight tools and will use them systematically to conduct on-the-spot checks on the situation within the grantee institutions. The performance of this oversight function is assisted by an audit catalogue. Moreover, the Commissioner intends to produce further guidance e.g. on temporary employment contracts to ensure that procedures are implemented correctly. Moreover, the Commissioner has developed a continued training programme to identify the continued training needs of staff in the relevant organisational units. We will monitor the Commissioner’s compliance with the commitments made.

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