Audit reports
You are here: Home / Audit reports / Products / Good Practice Guides Developed by the External Audit Function / Collection of Good Practice Guides / Efficiency/efficiency analyses / Guide no. 02/01: Exemption from insurance cover for damages to federal staff and tangible/intangible assets

Document Actions

Guide no. 02/01: Exemption from insurance cover for damages to federal staff and tangible/intangible assets

Guidelines

(1) As a matter of principle, risks of damage to persons, property and assets of the Federal Government should not be insured. Where the Federal Government is not compelled by law, insurance cover should be taken out only where doing so is cost-effective.

(2) Where exceptions are made from this principle of ‘self-insurance’, the Federal Finance Ministry has to be involved. In such cases, justifications need to be available on the cost effectiveness for the Federal Government of taking out the insurance.

Background

Pursuant to item 11 sentence 1 of the Administrative Regulations on Art. 34 Federal Budget Code, risks of damage to persons, property and assets of the Federal Government are not to be insured (government is its own insurer). Where damage occurs, the related expenditure is borne from the federal budget. The principle of ‘non-insurance’ is based on the notion that, due to the large quantity of people and objects, risk is spread out evenly in line with the ‘law of large numbers’. By refraining from taking out insurance cover, the profit and administrative cost components of the insurance premiums can be saved.

The principle of non-insurance applies to the federal departments and agencies. It also has to be observed by non-departmental federal bodies where legal provisions, e.g. Acts of Parliament, charters or financial management regulations make reference to the provisions of the Federal Budget Code. Pursuant to item 1.4 of the Auxiliary Terms and Conditions for institutional grants, the same applies to recipients of federal grants where they are mostly financed from public funds.

Pursuant to item 11 sentence 3 Administrative Regulations on Art. 34 Federal Budget Code, exceptions from the principle of self-insurance require the consent of the Federal Finance Ministry.

In 2011, we studied cases in which the federal administration derogated from the principle of self-insurance. We found that this principle was not always applied and/or applied incorrectly.

(1) Some federal entities were not familiar with the principle of self-insurance and insured potential damage in contravention of the general rules. Frequently, no appraisals were made as to whether taking out insurance cover was cost-effective for the federal budget. In a number of cases, the authorities only assessed whether taking out insurance cover was cost-effective within the remit of their government department. The results may differ where e.g. an authority takes out comprehensive insurance cover for vehicles, makes the vehicles available for use by other authorities and charges the insurance costs to them.

In a number of cases, the authorities did not really know which officials or equipment come within the Federal Government’s domain. There were uncertainties e.g. in case of leased vehicles. In our opinion, application of the principle of self-insurance is not contingent upon the equipment being federal property. Rather than that, the decisive criterion is that the Federal Government has actual control of the equipment. As a rule, this also requires actual possession. Where the Federal Government has leased vehicles, they are to be considered as federal chattels.

(2) Often, the Federal Finance Ministry was not informed that insurance cover had been taken out. The reasons given by federal departments and agencies for this omission, e.g. shortage of staff, avoiding legal disputes or inadequate knowledge of federal budget law did not justify taking out insurance cover without the involvement of the Federal Finance Ministry. Most of the applications submitted to the Finance Ministry for permitting an exception from the principle of self-insurance, did not include any proof that taking out the insurance cover was cost-effective for the Federal Government.

Notes

 In its budget management circular 2012, the Federal Finance Ministry provided the following guidance:

  • Pursuant to item 11 sentence 3 of the Administrative Regulations on Art. 34 Federal Financial Regulations, derogations from the principle of self-insurance require the consent (prior approval) of the Federal Finance Minister as the minister responsible for the budget.
  • The principle of self-insurance generally also applies to recipients of institutional grants (cf. item 1.4 of the Auxiliary Terms and Conditions for institutional grants).
  • Applications by budget officers for permission of exceptions need to be addressed to the respective ‘shadowing division’ of the Budget Directorate-General. All entities in question have to justify the considerations and reasons underlying the decision to derogate from the self-insurance principle.

The Federal Finance Ministry requested future compliance.

 

 

Filed under:
© 2019 Bundesrechnungshof