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2019 Press release 07 – 2019 annual report

Graphic - Annual Report 2019

P R E S S   R E L E A S E

German SAI’s 2019 annual report

 – Climate change, taxes, defence, public buildings, IT, railways –

 

The German SAI has communicated its 2019 annual report on federal financial and commercial management to parliament and government. "Our findings provide a major foundation to build on in the parliamentary discharge procedure of federal government", said Kay Scheller, President of the German SAI, when presenting the 2019 annual report to the public. "Our major concern is: In what cases has government not complied with fiscal rules or put funds to inefficient use? In what cases has government failed to collect funds due?"

The 2019 long-form report comprises 28 audit findings that parliament will deliberate on over the next months. They concern programmes designed to mitigate the impacts of climate change, defence procurements, rail transport, the IT sector (IT system in building construction or the use of apps), tax shortfalls, federal civil service allowances and the Federal Employment Agency. Kay Scheller states:

"To address climate challenges, the right thing to do is to encourage car drivers to switch to public transport. Such support schemes must be in line with the climate targets set. The level of grants should not be guided by vehicle fuel consumption: more fuel meaning more money. Rather than that, ecological and sustainable criteria such as pollutant classes and fuel efficiency should serve as a yardstick."

"Deutsche Bahn, the German railways company, needs to do much more to enhance transparency," Kay Scheller continued. "Deutsche Bahn refuses to provide us access to its business activities. The Ministry of Transport tolerates this. The Ministry also receives a portion only of the documents it needs for its work. Recent case: documents on Arriva, the British public transport operator, and its economic situation. Again, the Ministry has failed to act. The Ministry must stop its current laissez-faire approach."

As to the PUMA (Cougar) infantry fighting vehicle, Kay Scheller states: "The vehicle is to play a central role in NATO missions joined by the Federal Armed Forces. Most regrettably, the crew still has no functioning combat training simulator at hand. For a number of years, planning has been misguided and has cost over €100 million. Nearly half of that total has been wasted because after a period of 15 years, overall planning is changing."

You can find a selection of major findings below:

 

Steps to mitigate the impacts of climate change

 

Public transport subsidies adverse to climate protection (No. 9)

A fuel subsidy for public transport gives preferential treatment to high-consuming vehicles at the expense of fuel-efficient, eco-friendly and low-emission vehicles. The subsidy rises in line with fuel consumption: the higher fuel consumption, the higher the subsidy. Reasoning behind this is outdated. The subsidy does not provide an incentive to public transport operators to use low-fuel and low-emission vehicles. We also doubt that the subsidy effectively encourages private vehicle users to switch to public transport.

We recommend revising the subsidy on the basis of the environmental and climate targets set by the federal government. One option may be to take into account the pollutant category and energy efficiency of the vehicles.

Background information: Public transport operators currently receive a tax relief for the energy tax imposed on fuel. As public transport mostly operates diesel buses, 99 per cent of the relief granted is for diesel buses. Since programme inception in 2000, total tax relief has reached €1.2 billion.

 

Effectively adapt to the impacts of climate change (No. 20)

Since 2011, the Federal Ministry for the Environment has grant funded programmes designed to adapt to the impacts of climate change without analysing programme effectiveness. The grant programmes met with little demand only. By 2016, a mere €12.6 million had been called up which is 30 per cent only of the €41.2 million earmarked for this purpose. Rather than on genuine adaptation programmes, the grants were spent mainly on strategies and educational courses. The Ministry even failed to review whether these courses had actually taken place.

In addition, the Ministry failed to define clear and measurable targets. In this way, the Ministry was not able to review programme achievements. If the Ministry intends to pursue this grant programme, it needs to revise it and enhance programme effectiveness.

 

PUMA vehicle still without combat simulator (No. 18)

Although the Federal Armed Forces have operated the PUMA (Cougar) infantry fighting vehicle for four years, crews still do not have an adequate combat simulator for training. Without this simulator, training can be done only in the vehicle itself. This practice leads to extra costs. It also adds to wear and tear as well as repair of the vehicle.

The Federal Armed Forces have developed a simulator technology since 2004, but they relied on a flawed approach. Instead of installing the simulator in a special container, initial plans indicated that the infantry fighting vehicle itself was to serve as a simulator station. Since 2006, the army has been concerned that this is no good and feasible option. A series of tests confirmed the doubts. Now the container-based option is preferred, which means that €46 million of the €105.7 million invested so far have been wasted. This amount has been spent on components that can no longer be used for the new solution.

 

Defence recruits still receive inaccurate pay (No. 19)

For a number of years, the Federal Armed Forces’ payroll calculations for new recruits have been flawed often at the recruits’ expense. The Federal Ministry of Defence did not adhere to its promise to parliament to ensure accurate military pay rates. The Ministry urgently needs to implement effective control mechanisms parliament demanded to ensure that new recruits receive their pay due. As early as 2013, we found that in many cases the Federal Armed Forces made errors in determining pay bands and grades. As a result, parliament demanded the Ministry to address the problems stated. In 2017, we found that the Federal Armed Forces pursued its former practice of setting faulty and belated pay rates. In some cases, the Armed Forces needed more than two years to determine pay grades. Effective control mechanisms are still lacking.

 

 

Rail transport

 

Government fails to act although Deutsche Bahn violates the law by refusing to provide information (No. 13)

Government tolerates the fact that Deutsche Bahn of which it is the sole shareholder refuses to disclose to us information on its business activities. Deutsche Bahn has the statutory duty to make available such information. This information duty is also set forth in the railways’ articles of association. Without such information, we cannot comply with our constitutional mandate to audit governmental shareholding activities in Deutsche Bahn.

Government officials were not able to answer questions on the government’s role in the railways selling electric power to private customers. When we turned to Deutsche Bahn to ask this question, it refused to provide any response. Although government officials are aware of this situation, they do not support us in enforcing our access rights. We therefore urge the government to promptly act and make Deutsche Bahn grant access to relevant data.

 

Federal Ministry of Transport and Digital Infrastructure impedes our audit work on Deutsche Bahn (No. 14)

For a number of years, the Federal Ministry of Transport and Digital Infrastructure has failed to fully comply with its accounting duties on its railway shareholding activities. The Ministry has the duty to submit to us documents of the supervisory board and own reports in due course. The Ministry does not meet this obligation at all or with significant delay only. These shortcomings concern the parent enterprise, large subsidiaries such as DB Netz AG or DB Cargo AG and federal shareholdings abroad.

The Ministry thus makes it rather difficult for us to audit federal shareholdings in Deutsche Bahn and its 680 subsidiaries that are located in more than 140 countries. At the same time, the Ministry waives a major instrument to perform its oversight functions. For example, the Ministry has not received any documents from British Arriva plc., the transport operator purchased by Deutsche Bahn in 2010. Since 2015, the Ministry has no longer received any annual financial statements. As a result, the Ministry has no insight into the regularity of management or the economic situation of the enterprise and its approximately 200 subsidiaries. The Ministry has the duty to perform its ownership role in full and to meet its reporting and accounting obligations in time. 

 

IT

 

No IT system in place to provide overview of building projects (No. 3)

For a number of years, the Ministry has delayed the development of an IT system designed to present key project data of all federal construction projects in a systematic and well-structured manner. For this reason, the Ministry does not have a full overview of building projects although funds of €1 million are spent on such projects. The Ministry is not able to conduct cross-cutting analyses of cost increases for building projects. The Ministry needs benchmarking data on building costs, timetables and construction progress to fulfil its planning and governance functions. Such a system would enable the Ministry to detect and address structural shortcomings of federal building projects and mitigate cost and time overruns. In the absence of such an IT system, a key basis for reforming federal construction projects is lacking.

 

We expect the Ministry to avoid further system delays and instead make developing the system a key priority and set a clear timetable.

 

Wasting millions on federal government apps (No. 4)

Several federal authorities spent nearly €5 million on developing, advertising and operating 18 app services without having substantiated their need or value for money. Nor did the authorities evaluate the success of such apps. It is not enough to use modern media for public outreach efforts such as the “knowledge makes wiser” app for consumer protection or a forest guide for German woods and forests. The authorities should have defined measurable targets such as a target group for their apps and how to assess target achievement. A nice gadget does not justify spending millions of budget funds.

 

Taxation

 

KONSENS: Programme evaluations need to be enhanced (No. 8)

The Federal Ministry of Finance will not be able to timeously detect and address undesirable developments of the KONSENS tax software project. To steer such a large-scale project, concurrent programme evaluations are needed. However, such evaluations need to be based on key project data such as measurable targets and indicators with actual and targeted values on the nation-wide software implementation etc. These are not in place. The Ministry intends to speed up the project on which €1 billion has been spent. The success of the acceleration effort cannot be assessed if programme evaluations are not enhanced.

Background information: The federal and state governments have taken a joint effort to develop and implement a uniform high-performing and advanced tax software system. This system is called KONSENS (German abbreviation for coordinated new software development of tax authorities). The system serves to make assessing and collecting tax due of more than €600 billion more efficient and effective. By the end of 2018, out of a total of 690 software products proposed, merely 190 products were used nationwide.

 

Finally abolish outdated turnover tax privileges (No. 25)

For a number of years, the Ministry of Finance has failed to update a flat-rate regulation on input tax deduction. In the daily practice, this regulation is of little significance but fiscal processing is a lengthy and cumbersome process for the tax offices. Self-employed people of 58 professions and trades may use lump-sum rates to compute the input tax deductible from turnover. At the time of our audit, however, merely 12,000 self-employed from 26 branches such as journalists, architects or writers used this option which caused a major workload for the tax offices. In many cases, tax return data need to be checked manually. The Ministry should finally initiate the legislative amendment it announced already in 2016.

 

Allowance for income from farming and forestry falls short of target set (No. 27)

Tax allowance for income from farming and forestry falls short of its target to support small-scale and micro farming. Often larger farms benefit from the allowance. In addition, all taxpayers receiving income from farming and forestry, regardless of whether they actively run or lease a farm, are eligible for an annual tax-free allowance of €900. Spouses and civil partners also benefit from tax relief, even if they have no respective revenues from farming. Traders and self-employed are not eligible for similar tax relief. From the legal point of view, this unequal tax treatment is questionable. We recommend abolishing the tax allowance and suggest replacing it by a direct subsidy.

 

Civil service pay system

 

Concerns about thick allowance jungle (No. 5)

Rules and regulations governing civil service allowances are far too complex and inconsistent. 19 different functional allowances and 27 different severity allowances, each with hundreds of sub-types, create a highly complex and baffling system. If you take diving allowances for example: The Federal Armed Forces use 84 allowances and the Federal Police 71 individual allowances that take into account dive depth, type of current, (water) temperatures and bodies of water. This undue complexity constitutes an excess administrative burden and often leads to erroneous payments often at the expense of the staff. The Ministry should act promptly and launch an overall mapping exercise to largely simplify the allowance system.

 

Federal Employment Agency

 

Excess management staff at Federal Employment Agency’s field offices (No. 12)

In 2012, the Federal Employment Agency restructured tasks at its field offices. The Agency failed to adapt its organisational structure accordingly. At almost one third of the Agency’s field offices, the head of division directly reports to the head of office. Only the head of division has a number of subordinate units. Such single-line hierarchies should not be created. The Agency needs to design the organisational set-up in a way commensurate with the portfolio and use flat hierarchies with appropriate headroom for management.

 

 

Europe

 

Ensure consistent application of the Schengen rules (No. 6)

The 26 Schengen states weaken the entire system because they do not adequately check visa applications and individuals entering the Schengen area. Shortcomings may jeopardise public safety and order thus undermining public trust in the Schengen system.

On the one hand, within the Schengen area, individuals can travel freely without border controls. On the other hand, the Schengen states agreed on minimum standards governing Schengen external border controls and visa issuance. In recent years, protection rules have often not been complied with. We found diverging practices in processing visa applications and that lacking but mandatory documents were not subsequently demanded. When checking identities at the external borders, authorities do not fully verify personal data against EU data bases.
The federal government needs to ensure that German border control authorities consistently implement the standards agreed. At the EU level also, government needs to urge for a proper and consistent application of the Schengen security instruments.

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