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Reporting item No. 1 - Findings on the federal annual accounts for FY 2019

Dec 08, 2020

We audited the annual financial accounts of the federal government for FY 2019. In doing so, we did not find any material differences between the figures stated in the accounts and those in the underlying records. This also applies to off-budget funds. To verify the extent to which revenues and expenditures of the federal budget have been properly supported by vouchers and receipts, we used a mathematical-statistical procedure. Results showed that 1.55 per cent of the accounting entries were not properly supported by vouchers and receipts.

The 2019 Budget Act provided for revenues and expenditures of €356.4 billion without any net borrowing. One budget item was a withdrawal from the “asylum seekers and refugees” reserve in the amount of €5.5 billion. 2019 budget implementation had not yet been affected by the coronavirus crisis. Due to the still favourable economic trend, lower unemployment rates and an increase in tax revenues, no withdrawal from the reserve was necessary. Instead, €13.0 billion were transferred to this reserve. At a result the reserve stood at more than €48.2 billion at year-end 2019. In our opinion, continuously increasing this reserve infringes the principle of annual budgeting. This is all the more so the case, if even in periods of crisis such as the 2020 financial year, the reserve is not used to cover extraordinary budget expenditure but maintained as a provision for financial years ahead.

In FY 2019, government’s total expenditure including transfers to reserves was €357.1 billion. Thus, the budget targeted amount of €356.4 billion was exceeded by €0.7 billion. Excluding such transfers, expenditure totalled €343.6 billion. Interest expenses were €5.5 billion less than provided for. However, for several years now, interest rates have not reflected the funding conditions. In the year 2019, interest rates included revenue from premiums of €5,7billion. Such one-time effects are a distortion of financial exonerations in the positive direction.

Revenues (without net borrowing and revenues from coinage) exceeded the budgeted amount by €0.8 billion. Debt cancellation, rescheduling, refinancing etc. resulted in federal revenue losses of €5.4 billion. As budgeted, no new borrowing was required.

The constitutional debt rule was complied with both in drawing up and in implementing the budget. Arithmetically, the federal budget closed with a structural surplus of €3.5 billion. A revenue surplus of €13.3 billion was achieved. However, from 2020, tackling the financial burden from the coronavirus crisis will put the debt rule to a severe test.

Excess and extra-budgetary expenditures amounted to €0,8 billion. This amount was €0.3 billion more than in the previous FY. Unauthorised expenditures totalled €9.7 million.

At the end of FY 2019, €22.0 billion were available for carry-forward. This amount exceeded by €2.7 billion the amount available at the end of FY 2018. Compared to the previous financial year, funds eligible both for virements among programmes and for carry-over rose by €1.1 billion and funds eligible solely for carry-over rose by €1.7 billion.

Departments and agencies retained unexpended balances of €3.75 billion of a total of €3.82 billion of the expenditure authorisations eligible for virement among programmes and for carry-forward to FY 2019. This means that federal departments and agencies intended to rely on 98 per cent of the unexpended balances in future financial years.

The 2019 federal budget included commitment authorisations of €117.7 billion. Actual commitments made under these authorisations totalled €51.5 billion. The utilisation ratio was 44 per cent, which was 3 per cent below the level of the previous year. Under the commitments entered into, expenditures of €174.6 billion will have to be made in the financial years ahead (as at 31 December 2019). This limits the budget legislator’s leeway in the future.

The ceiling for warranties of the government and its off-budget entities totalled €1,095 billion. This included programmes to combat the European public debt crisis and the financial market crisis. Warranties in the amount of €498.5 billion were actually assumed up to year-end 2019.

The total amount of devolved funds increased by €28 million compared to the previous year’s figure to €2.2 billion at year-end 2019 and concerned eight departmental budgets. As in the previous year, the major portion wen to chapter 0452 (Federal Government Commissioner for Culture and the Media) with €979 million and to departmental budget 30 (Federal Ministry of Education and Research) with €899 million.

At year-end 2019, valuated federal assets including those of the off-budget federal entities and trust funds totalled €299 billion. In particular, the capital account still does not disclose or does not valuate real estate and infrastructure assets. One of the reasons for this is that the accounting rules do not yet cover non-departmental federal bodies e.g. the Institute for Federal Real Estate. For this reason, the capital account is still not conclusive. Federal debt (including reserves accrued for the payment of pensions and health care benefits) totalled €2,031 billion. Debt from borrowing including liquidity loans totalled €1,090 billion. The German SAI supports the Federal Ministry of Finance in its efforts to further complement and enhance the capital account. We wish to reiterate our recommendation for developing a strategy on how to cover non-departmental federal bodies.

Setting up and managing off-budget funds is subject to rigorous criteria. In our view, a number of off-budget funds newly set up in recent years did not meet applicable criteria. For this reason, we were concerned about violations of the budgetary principles of unity and reliability. The major reason for setting up some off-budget funds was to recognise expenditures ahead of payments which were made only several years later. This violates the principle of annual budgeting and the validity principle. This is the case for the Energy and Climate Fund, the Local Investment Promotion Fund and the Digital Infrastructure Fund. As a rule, such expenditures should be part of the government’s core budget and not be accounted for as an off-budget fund.

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