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graphic - spring report 2018

P R E S S  R E L E A S E

Current audit findings

- Armed Forces, road works, building construction, health, taxes -

The German SAI has published its spring report that supplements the audit findings set out in its 2018 autumn report. “The audit findings published today provide updated input to the parliamentary discharge procedure under way. The spring report serves to make available our audit findings and recommendations in a timely manner to help ensure that shortcomings and inefficient management in the public sector can be addressed promptly”, Kay Scheller, President of the German SAI stated when he issued the spring report. The Public Accounts Committee, a sub-committee of the parliamentary Budget Committee, is to deliberate on the findings until Parliament’s summer recess.

The current spring report (supplementing our 2018 autumn report) sets out reporting items, where the audited government departments have chosen not to implement the SAI’s recommendations for improvement.


Flat-rate billing worth a million euros instead of accounting inspections (item 5)

For many years, various statutory health insurers concluded individual agreements with hospitals about flat-rate billing worth several millions and, in return, had not cross-checked the billings. In this way, health insurers did not comply with their duty to review hospital billing. This resulted in waiving the inspections of the Health Insurance Medical Service, a service required by statute. The agreements enable hospitals to buy their way out of health insurer inspections. There is the risk that hospitals have even taken the potential deductions into account when calculating their fees and have issued excessive billings.

Given the longstanding practice of concluding such agreements and the heavy resistance to abolishing them, we consider the action taken to be just a first step to address the problem. We recommend that such agreements be prohibited by statutory law. The Federal Ministry of Health should initiate legislation to this effect.


Armed Forces

Frigates lacking skilled crews (item 2)

The Federal Armed Forces cannot train enough staff for their four new frigates (F 125) procured at a cost of more than €3 billion. As a result, the new frigates cannot be deployed as was originally intended. The Navy intended to operate two of the four vessels on a permanent basis for up to two years. The crews were to rotate every four months. For this purpose, additional funds have been made available to equip the F 125 frigates with automated systems needing very little maintenance and repair. However, the Federal Armed Forces failed to build up land-based facilities needed to train the operating crews. This means that for at least ten years, the new frigates cannot be deployed as was originally intended.


Federal Armed Forces: no procurement of hand-held radio sets (item 3)

The Armed Forces consider procuring 800 hand-held radio sets in 2019 at a cost of more than €1 million, although they have a sufficient number of such radio sets. At year-end 2018, the Armed Forces had nearly 8,000 of these hand-held radio sets, but less than half of them were used at the same time in Germany and on missions abroad. Although we had already found in 2017 that several thousand unused radio sets were stored on shelves, the Federal Armed Forces purchased 3,200 more radio sets as backup units at a cost of €4.7 million, while it could have replaced defective sets from the stock. Moreover, the Federal Armed Forces intend to introduce a successor system for the same purpose in the years from 2019 to 2022. The available hand-held radio sets are not compatible with the successor system selected. As a result, they will become useless.

The Armed Forces should decide against procuring another 800 hand-held radio sets.


Overhaul of old naval aircraft not running smoothly (item 4)

After a major overhaul of eight older naval aircraft, the Federal Armed Forces failed to achieve their goal of putting the aircraft to efficient use. In 2015, they awarded contracts worth €500 million for this overhaul. Shortcomings in planning, resources-intensive studies, repairs, extra specifications – such as a new radar system – have led to considerable time and cost overruns. There is a high risk that the aircraft will not be overhauled by year-end 2025. Furthermore, the estimated additional expenditure for the overhaul will total €340 million or more. It would be overly optimistic to believe that current planning schedules can be met. The Ministry of Defence would be well advised to initiate a reappraisal of the entire project and decide on the scope of the overhaul needed.

The Federal Defence Ministry bought the eight used aircraft from the Dutch Navy in 2004. At the time of purchase, they were already 20 years old and in bad condition. By year-end 2014, the Armed Forces had spent more than €1 billion on purchase, operation and repair for these eight aircraft.



Public broadcasting corporations undertaxed (item 7)

Public broadcasters enjoy undue tax privileges with respect to commercial revenue. This resulted in subsidies of approx. €55 million during the last decade. While the broadcasters are not subject to taxation in statutory broadcasting, they are liable to tax on their earnings where they engage in commercial activities e.g. by broadcasting advertisements or commercialising programmes. In this case, they are authorised to largely calculate their tax liability due by using a flat rate. The flat rates have remained unchanged for the past 20 years although modifications would have been needed. There is no statutory basis in place for all the flat rates used. We repeatedly drew attention to the need for action. However, the Federal Finance Ministry has so far chosen not to take any steps to address the problems we stated. The Ministry should promptly initiate the necessary reform of taxation of public broadcasters.


Data on tax inspections misleading (item 8)

The data the Ministry of Finance holds on the additional amount of tax received as a result of tax inspections contain erroneous data that add to providing a distorted picture of tax revenues. Hence, the data statistics is neither good for tax planning or steering the tax administration nor for providing information to the general public. We found that the data recorded in the Ministry’s statistics deviated largely from the data on the actual data yield. In the cases we checked, the tax administration had actually collected less than half of the additional amount stated in the data. Also the number of tax inspections recorded exceeded the tax inspections actually conducted by up to a third. The cause for the shortcomings we stated was that the Ministry set inadequate requirements for the annual statistics and that tax authorities did not comply with other clear and applicable requirements. The Ministry of Finance should fully revise the requirements and the procedures for collecting reliable data on the tax yield.


Abolish unjustified tax privilege for prepaid credit cards (item 9)

Tax authorities give preferential tax treatment to prepaid credit cards vis-à-vis wages received in cash. Employers treat the reload as a benefit in kind and pay a 30 per cent income tax flat rate on the amount. The employee receives the benefits gross for net. The income of an employee is liable to a graduated tax rate of up to 45 per cent. Instead of special payments (bonuses or gratuities), employers increasingly give prepaid credit cards to their top executive staff. The reload of credit cards cannot be converted into cash, but the managers can use these credit cards freely to purchase any goods or services (e.g. a trip).

The flat-rate taxation tolerated by tax authorities has resulted in unjustified and disparate tax treatment of employees receiving payment of wages in cash. Given a credit card reload of €10,000, the benefit in income tax can total €4,500 (plus annex taxes such as church tax, solidarity charge). This violates the principle of equality before the law and the tax authorities lose revenues that account for the difference between flat-rate taxation of 30 per cent and the respective individual tax rate. The Federal Ministry of Finance should take action to ensure that electronic money is subject to the same taxation as cash.


Road works

Clear run for long vehicles without consideration of the impact this might have (item 1)

The Federal Ministry of Transport and Digital Infrastructure granted approval for road operation to heavy road vehicles without having gathered reliable results on the long-term impact on infrastructure and traffic safety. Potential problems such as parking on rest areas, undersized emergency stop bays and an increased fire load in tunnels, driving on construction sites and overtaking on by-roads have not been reviewed sufficiently. If the number of long vehicles rises significantly, the Ministry will have to review the impact on infrastructure, especially the bridges and traffic safety. This will help the Ministry identify any expenditure projected for road infrastructure and step in promptly to provide leadership to tackle operational problems arising. It is crucial for the Ministry to pursue recording the increased operation of long vehicles on roads.

Long combination vehicles may have a length of up to 25.25 m that exceeds standard lorries (maximum 18.75 m), but are subject to the same weight restrictions. Long vehicles are in fact often much heavier than standard lorries, both with and without a load. Already in 2016, we had pointed out the lacking information of the Federal Ministry of Transport and Digital Infrastructure about heavy-duty transports on federal long-distance roads.


Building construction

Flawed public works management leads to cost overruns of almost 70 per cent (item 6)

We found shortcomings in project management of retrofitting a building complex located in the city of Bonn. Due to shortcomings in project planning and project governance, costs rose from €55 to €92 million and the building was not handed over to the United Nations until three years later than projected. When construction was launched, the status analysis was incomplete, the public approval procedure was not concluded and the future user needs had not been fully defined. This resulted in 1,100 supplementary claims of building and planning contractors during project implementation. The Federal Ministry of the Interior, Building and Community should promptly develop and implement strategies to improve planning and project governance of construction projects. Adequate planning and governance helps to mitigate and address risks in public building works at an early stage.


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