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Financial assistance, Armed Forces, climate protection, railways, EU trust funds, IT, fees –

P R E S S  R E L E A S E

2020 annual report of the German SAI


We communicated our 2020 annual report on federal financial and commercial management to parliament and the government. To limit the spread of Covid-19, unprecedented efforts are being made by the state, society and the economy. The federal government launched emergency assistance programmes and temporary aid schemes in the range of billions of euros to help tackle the pandemic's impact on health and well-being. For many years ahead, these steps will weigh heavily on the federal budget and limit the scope for fiscal policy decisions. “In this situation, we must make sure that citizens can trust in an effective audit institution that serves as a watchdog of government action”, Kay Scheller, President of the German SAI, stated when he published the 2020 annual report. “Albeit covering the period prior to the onset of the pandemic, our annual reporting items refer to central and topical issues: In what cases has the government not complied with fiscal rules or put funds to inefficient use? In what cases has the government failed to collect funds due? In what fields should the government change systems to achieve better value for money?”

Our concerns surrounding these matters are reflected in our 2020 annual report. “Our annual report serves as a major basis for granting parliamentary discharge”, said Mr. Scheller. “What really counts is that government acts on our findings. Government may take major steps leading the way out of this severe crisis. Our annual report makes recommendations to help address shortcomings, connect funds to goals or use the funds more efficiently and effectively.”

Our annual report fosters parliamentary control over government action, which is a core principle of the separation of powers. At the same time, the facts and figures we provide in our report help shape public opinion on government action.

The 2020 long-form report comprises 21 audit findings that will be subject to parliamentary deliberations in the months ahead. Our audit findings cover topics such as federal grants given to the states to promote local infrastructure investments and maintain and expand childcare places, deadweight effects and poorly defined requirements of grant programmes, defence procurement, railway services, IT, EU trust funds, and declining tax revenues and fees.

You can find a selection of major findings below:

Armed Forces

Ageing tankers need to be decommissioned (No. 11)

The Navy’s fuel transport tankers have been in service for over 40 years. This by far exceeds the expected useful life. Accordingly, they are in a poor condition. The Armed Forces should lose no time to take the tankers out of service. Their poor technical condition jeopardises operational effectiveness. This situation has been the reason for halting or curtailing operations. The shortcomings stated also lead to lengthy retrofitting periods at shipyards. These circumstances caused maintenance costs to soar, in a recent case by almost €40 million. On top of that, single-hull tankers present considerable environmental hazards. Since 2005, this has not been in compliance with applicable security standards to which the Armed Forces committed themselves some years ago. Although the Armed Forces have been well aware of the problem, they waited until June 2020 to launch procurement procedures of new tankers. The Armed Forces chose not to rely on the time and money saving option to purchase standard tankers available in the marketplace and to modify them for defence use.

Incomplete materiel information puts operational readiness at risk (No. 12)

For many years, the Armed Forces have failed to remedy the lack of information in their IT logistics system. Faulty or lacking information on technical details, storage, or maintenance adversely impacts the supply of the army with spares and repairs. For example, repairs cannot be carried out, the materiel’s whereabouts are unknown, or the materiel is damaged due to inadequate transport or storage. For the same token, problems emerged regarding the supply of spare parts, for the PUMA (Cougar) armoured infantry fighting vehicle, or the availability of information on rims and tyres for trucks and of mounting kits for transceivers in field missions. All this jeopardises the operational readiness of the Armed Forces. To ensure operational capability, the Armed Forces need to have in place workable defence systems. To this end, an effective logistics supply chain is needed. This in turn is contingent upon reliable data in the IT logistics system.

The Armed Forces need to enhance materiel information quality without further delay and to thus enhance operational readiness. Otherwise, the Armed Forces risk to fall short of the goal to ensure full national and NATO defence readiness by 2031.

Aviation training programme for helicopter staff: Doubts over usefulness of 60 new multi-role helicopters worth €2 billion (No. 13)

The Federal Ministry of Defence intends to procure and operate 60 new multi-role helicopters worth €2 billion. These are to be used by the Armed Forces to provide ground and flight training to pilots of specialised helicopters such as the TIGER combat helicopter or the NH90 transport helicopter. However, the strategy for ground and flight training is not yet available. It is still unclear for what programme modules the complex multi-role helicopters can be used which offer a simple training environment only. As a result, doubts remain as to the usefulness of the multi-role helicopters for training purposes. The Armed Forces may fall short of the goal of closing a training gap with a new pilot training model. This model was supposed to compensate for the insufficient availability of specialised helicopters and to enable pilots instead to train and maintain their flying skills in a multi-role helicopter.

In a first step, the Armed Forces should identify the pros and cons of using multi-role helicopters for training, and in a second step, it should identify actual needs.


Federal co-funding of federal state programmes

Promotion of childcare: No programme evaluation in place (No. 17)

To date, the government cannot provide assurance that the grants worth €4.4 billion to expand and maintain childcare places have been effective. Without the results of a programme evaluation, the government is not in the position to reliably assess as to whether its co-funding should be continued, modified or discontinued. Nevertheless, the government makes available additional funds of €1 billion by launching the Covid-19 stimulus programme. Since 2008, the government has used this funding instrument to support childcare infrastructure. Therefore, a programme evaluation would have been needed by 2014 at the latest. The states had advised the Federal Ministry for Family Affairs, Senior Citizens, Women and Youth that the need for childcare places, especially in eastern Germany, had almost fully been met.

The government should avoid co-funding in violation of budgetary provisions. To ensure that the funding is steered in line with targets set, the Ministry needs to promptly conduct retrospective programme evaluations. The Ministry needs to assess the progress made to determine as to whether further co-funding is needed at all and, if so, specify the actual amount.

Federal grants must be used efficiently (No. 18)

The government fails to ensure that federal grants towards investments in municipal infrastructure are used efficiently and effectively. The government did neither adopt clear rules nor review the value for money of municipal investments. In 85 per cent of the investments funded by the government and audited by the German SAI no capital expenditure appraisal had been carried out. This concerns 219 out of 257 audited cases accounting for €59.3 million of the Local Government Investment Assistance Fund. The problem is that an activity’s efficient roll-out is no funding prerequisite. The government may not claim reimbursement of funds even if the value for money of a project has not been substantiated.

To ensure compliance with the value-for-money principle, the Federal Ministry of Finance should incorporate the obligation to carry out capital expenditure appraisals in the federal funding mechanism. If the value for money has not been substantiated for an investment, the government should be authorised to recover the federal grants.


Climate change

Federal grants of €150 million largely failed to meet the target of promoting climate-friendly cooling systems (No. 15)

The Federal Ministry for the Environment, Nature Conservation and Nuclear Safety funded the use of climate-friendly cooling systems with €150 million. Eventually, the programme proved inefficient and very susceptible to deadweight effects. Grants fell well short of expectations in quantitative terms. Over a period of nine years, the Ministry funded an annual amount of 2,000 systems only instead of 3,000 to 8,000 systems. Half of these systems were located in super markets. The funding of systems deployed in super markets, however, only led to a minor cut in emissions which means an ineffective use of funds. Generally, the programme led to sizeable deadweight effects as many operators had already intended to replace obsolete systems that consume high power and climate-damaging refrigerants. The Ministry needs to study which sectors still require federal funding, and how to ensure efficiency. The Ministry should also set targets to enable a robust programme evaluation.


German railways company

Rail transport disrupted by extreme weather during winter – federal government fails to act  (No. 10)

Each and every year, extreme weather conditions considerably impact the rail services provided by the German railways company (Deutsche Bahn). Although the Federal Ministry of Transport and Digital Infrastructure is well aware that Deutsche Bahn is not effectively prepared for severe weather it has not taken any action. In winter, Deutsche Bahn regularly does not clear snow from tracks at all or in time: Passengers are exposed to hazards on outside platforms. Snow and ice cause damage to rolling stock. This is not in line with the government’s mandate to provide universal services to the public which includes commitment to ensuring seamless rail transport. The Ministry, however, could do better to make Deutsche Bahn to explore the causes of these difficulties, do structured analysis of these difficulties systematically, and the problems stated. The Ministry needs to take leadership and urge Deutsche Bahn to adequately prepare for winter. The government is the owner of Deutsche Bahn and thus responsible for its commercial activities.



Millions of defence export revenue foregone (No. 5)

For many years, the Federal Ministry of the Economy has not complied with the statutory duty to charge administrative fees for processing defence export applications. As a result, the federal budget faces a revenue gap ranging from €5 to 10 million. The defence industry submits applications to obtain an arms export licence. Processing such applications is an administrative service for which a fee is charged. However, the Ministry does not charge such fees although in the year 2018 alone 14,300 applications for defence exports were submitted. The Ministry should act promptly to ensure that administrative fees are charged for processing these applications. Otherwise, the federal budget will be exposed to even more revenue losses.


Old-age pensions

Avoid a multi-million burden on the German statutory pension fund (No. 7)

The German statutory pension fund is facing a multi-million burden since for years, the Federal Ministry of Labour and Social Affairs has failed to initiate amending the Foreign Pension Act.

The cause for the problem is the extension of the European Union and a rising number of social security agreements with other countries. A growing number of expellees and ethnic German immigrants such as resettlers and late resettlers resident in Germany may claim the payment of old-age pensions for contribution periods in their countries of origin. Their pension entitlements from pension contributions in their countries of origin are only taken into account in calculating their German pension if the applicants actually draw such a pension from abroad. If they choose not to apply for pension payments in their country of origin, the German pension fund must cover their pension entitlements in full. This places a risk on the federal budget of incurring avoidable payments.

The Ministry should act promptly to launch a statutory amendment to protect the pension fund and its enrolees from extra burdens.


Emergency response

EU trust funds fall short of goals set (No. 2)

Since the year 2014, the EU has relied on foreign aid trust funds to raise more funding for emergency response. The funds did not achieve the purpose set. Fund management is more burdensome and less transparent than regular EU foreign assistance, since such off-budget funds are governed by requirements and procedures deviating from Union budgetary law. Nor is this fund structure of help in speeding up the delivery of individual projects. Especially for Germany, the few benefits of the Union trust funds are eaten up by a considerable number of setbacks. For example, voting weights do not consider EU budget contributions. As a result, Germany has a minor say only on the use of the funds than is the case with other Union funding instruments. The situation becomes clear if you look at the Regional Trust Fund in Response to the Syrian Crisis, the Madad Fund. Although being the largest contributor, Germany has only 6 per cent of the weighted votes. If the EU contributions were duly considered, the percentage would double. Also fund management is very burdensome for the federal government and causes extra cost. At Union level, the government should urge for funding all emergency assistance according to a uniform formula from the regular EU budget. In this way, special solutions such as off-budget funds will no longer be needed.

Since the year 2014, the EU has relied on foreign aid trust funds for emergency prevention and humanitarian assistance. These funds serve to pool EU budget funds and voluntary contributions of donor states. Non-EU member states may also contribute to the funds. Since the funds have been set up, Germany has contributed a total of €1.4 billion.


Integration programmes

Governmental mess impedes integration of refugees (No. 3)

The integration programmes for social and labour-market integration of refugees are impeded by a fragmentation of responsibilities and a high coordination effort. This concerns coordination both among government levels and within the federal government level. There is no public body in place that has the overall overview needed of all programmes available to align and steer the programmes. This is the only way to avoid parallel structures and duplicate programmes. This is also demonstrated by the language courses that are governed by a multitude of rules and services. So far, the federal government’s initiative to take stock of all integration programmes run by the states has failed because the states were unwilling to cooperate. In this situation, the federal government cannot ensure the consistency of integration programmes.

The federal government should initiate a legislative amendment to clearly define the tasks and responsibilities and develop a regulatory framework governing cooperation with the states.


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