ANNUAL REPORT on FEDERAL FINANCIAL MANAGEMENT Abridged Version

2014

ANNUAL REPORT ON FEDERAL FINANCIAL MANAGEMENT Abridged Version

BUNDESRECHNUNGSHOF (Supreme Audit Institution of the Federal Republic of Germany)

C o n t e n t s

Introduction

Part I (General financial management) Financial audit of the federal accounts for FY 2013 Trends in federal public finance

Part II (Cross-boundary and government-wide audit findings)

Part III (Development of departmental budgets and department-related audit findings) Federal President and Federal President’s Office The Two Houses of Federal Parliament Federal Chancellor and Federal Chancellery Federal Foreign Office Federal Ministry of the Interior Federal Ministry of Justice Federal Ministry of Finance Federal Ministry of Economics and Technology Federal Ministry of Food, Agriculture and Consumer Protection Federal Ministry of Labour and Social Affairs Federal Employment Agency Pension Insurance Federal Ministry of Transport, Building and Urban Development Federal Ministry of Defence Federal Ministry of Health Federal Ministry for the Environment, Nature Conservation and Nuclear Safety Federal Ministry for Family Affairs, Senior Citizens, Women and Youth Federal Constitutional Court Federal Ministry for Economic Cooperation and Development Federal Ministry of Education and Research Federal Debt General Fiscal Administration Activities and Budget of the German SAI

Introduction

1 Subject of the report

Germany’s Supreme Audit Institution (SAI) audits the entire financial management of the Federal Government including federal off-budget funds and industrial or trading funds (Art. 88.1 German Federal Budget Code). Where the result of its audit may be significant for granting discharge to the Federal Government in respect of the budget and capital accounts, the SAI reports to the two Houses of Parliament (Art. 97.1 German Federal Budget Code).

According to Art. 97.2 German Federal Budget Code, special emphasis is put on the following questions: • Do figures stated in the budget and capital accounts tally with those stated in the relevant accounting documents? Are revenue and expenditure duly backed up by vouchers? • In what significant cases did the audited federal departments and agencies not comply with the underlying rules and principles of financial management?

Moreover, we inform in our annual report about significant findings of the audit on the Federal Government’s management of its shareholdings in businesses incorporated under private law. Furthermore, we recommend future action, including suggestions for legislative amendments. We thereby comply with the Parliament’s request to inform the Parliamentary Appropriations Committee about audit findings that are of importance for proposed legislative projects.

The annual report deals with the Federal Government’s revenue and expenditure, assets and liabilities. The report may also address all measures that have a financial impact on the federal budget. In our capacity as external audit body, we do not evaluate policy decisions that comply with the law as it stands. Thus, they are not subject of the report.

When reporting on our audit findings, we also comment on the trend in federal financial management. Since 2011, we have also included reporting items into our annual report which provide key financial data and information on individual departmental budgets. They contain data on the budget structure and recent trends and audit findings that we have discussed with the audited bodies. The reporting items on departmental budgets focus on FY 2013, for which a grant of discharge is sought. However, they also refer to current trends or budgeting for FY 2014 or 2015. The purpose of our departmental budget items is to increase transparency for parliament and understanding of the general public and to place our audit work in the relevant financial management setting.

2 Procedure for drafting and adopting the annual report

The annual report is compiled in accordance with a structured procedure. It is based on our audit findings and on the advisory work of the SAI’s President in his capacity as Federal Performance Commissioner.

The audited bodies have the opportunity to comment on the draft of each annual report in advance. This part of the procedure especially serves to once more verify the audit evidence. Where opinions about the facts and figures presented or about the conclusions drawn differ, this is stated in the annual report.

The annual report is adopted by the SAI’s supreme decision-making body, the Board (Art. 14.1 no. 2 Bundesrechnungshof Act). After that, the SAI’s President communicates the report to the two Houses of the German Parliament and to the Federal Government. One day later, he presents the annual report to the general public.

In 2014, the two Houses of Parliament elected on the Federal Government’s proposal a new President of the SAI (cf. Art. 5.1 Bundesrechnungshof Act). The former President retired on 9 April 2014 after having completed the full term of office of twelve years.

Our annual report is a major basis for the annual parliamentary discharge procedure when the two Houses of Parliament individually grant discharge to the federal government for annual financial management. The Bundestag (the directly elected Lower House of the German Parliament) passes on our annual report to the Appropriations Committee, which has a leading role in the deliberation. The Appropriations Committee in turn passes the report to a sub- committee, the Public Accounts Committee. In most cases, the Public Accounts Committee follows our findings. In case of particularly serious deficiencies or legal infringements, the Public Accounts Committee additionally can expressly disapprove. On the basis of these resolutions the Appropriations Committee may prepare the decision on discharge incumbent on the lower House of Parliament. The resolution on recommended action adopted by the Appropriations Committee also includes the demand addressed to the Federal Government to implement the decisions made in our annual report, to introduce or pursue efforts to enhance efficiency and to report on the progress made in due time. This is to ensure that the results achieved can be duly taken into account in the budget deliberations. Finally, the Bundestag plenary session decides on granting discharge.

Besides, the Federal Council also decides on granting discharge to the Federal Government based on our annual report in a separate procedure.

3 Topicality

The annual report, which is submitted each autumn, is not only limited to the FY, for which a grant of discharge is sought. It may also cover subsequent or preceding financial years (Art. 97.3 Federal Budget Code). In agreement with the Public Accounts Committee we developed supplementary spring reporting. This procedure provides a more up-to-date basis for the decision on granting discharge for the last but one FY to the Federal Government which is scheduled for June each year.

4 Structure of the annual report

The annual report on federal financial management consists of four parts:

The general part of the annual report (Part I) sets forth our audit findings on federal budget and capital accounts for FY 2013 and findings on trends in federal public finance during the medium-term financial planning horizon (2014- 2018).

Part II highlights audit findings not closely associated with receipts or expenditure items in individual departmental budgets. Such findings may concern, for example, topics on which audit focus has been placed for one year and that have been investigated as cross-cutting issues. In this part, we also report on audit findings produced in government-wide audit work on public sector management. We also designate the pertinent federal government department having lead responsibility for a matter which should take leadership in addressing any shortcomings stated.

Part III reports on our audit work on individual departmental budgets in chronological order of the federal budget.

The reporting items are classified as A items referring to budgetary trends, B items deliberated by the Public Accounts Committee or C items, i.e. other audit and advisory findings.

Each reporting item has the following structure: first briefing information is presented on the major revenue and expenditure items, commitment authorisations and staffing costs.

Nevertheless, owing to the general elections that took place in September 2013, the 2014 draft budget was subject to discontinuity (Art. 125 of the German Parliament’s Standing Orders). Thus, the 2014 Budget Act including the draft budget had to be introduced anew. The new Federal Government submitted a 2nd draft budget on March 2014 which considers the coalition agreement’s political requirements. The Budget Act including the budget for 2014 was

7 therefore not adopted until July 2014 after considerations in the newly elected Parliament.

Following the briefing information, major audit findings are reported on cases on which no agreement has been reached between the German SAI and the audited body. Those cases are submitted to the Public Accounts Committee for deliberation and decision-making (B items).

As a rule, the annual report items on other results of audit and advisory work do not need any further parliamentary endorsement. These items include cases where our audit recommendations have been followed. These reporting items also cover advisory work done by the German SAI’s President in his ex officio capacity as Federal Performance Commissioner and advisory work pursuant to Article 88.2 Federal Budget Code (C items).

Part IV summarises results of our international audits, including joint audits with European SAIs or EU-related audits.

All reporting items in parts II and III are supplemented by a note indicating to which of the ABC categories they belong. Report items belonging to categories B and usually also C have a standard structure: A summary of the contents (XX.0) is followed by a presentation of the audit evidence (XX.1), the conclusions drawn from it (XX.2) and the comments of the relevant authorities (XX.3). The last section presents our final evaluation and, where appropriate, our recommendations and suggestions (XX.4).

Executive summaries on reporting items are included in the blue pages.

5 Impact of the restructuring of the federal budget on our annual report

Key issues addressed especially in Part I of our annual report and the comments on the individual departmental budgets (Part III, category A) are the annual federal budget and the budget accounts. Beginning with the 2013 draft

8 budget, the Federal Finance Ministry has started to restructure the departmental budgets in order to achieve greater transparency in the presentation of expenditures and revenues. Programme expenditures are to be highlighted more strongly. So far, the new structure has been introduced for 15 (out of a total of 22) departmental budgets. The Federal Finance Ministry stated that according to current plans the other departmental budgets are not adopted to the new structure until the 2016 federal budget’s draft.

In the course of restructuring, all titles will be transferred to new chapters; in a number of cases, several titles will be merged into a new title. As a result, the target figures in the draft budget are no longer readily comparable with the estimates and actual outcomes stated in the budgets and budget accounts for previous years. In order to facilitate comparison between the key expenditure items addressed in our comments on departmental budgets, the relevant estimates are presented in the tables in accordance with the new structure of chapters and titles, without regard to the former structure.

6 Changes in the federal government departments’ responsibilities

In December 2013, the Federal Chancellor restructured some federal government departments’ responsibilities by means of an organisational decree. She also reallocated budget funds in the departmental budgets. Moreover, the Federal Government intends to set new political priorities. The former Federal Ministry of Economics and Technology, for instance, is now the Federal Ministry of Economic Affairs and Energy, which is also responsible for new tasks, e.g. energy saving, which had been in the Federal Ministry of Transport and Digital Infrastructure’s remit before. Restructurings are considered as follows:

The reporting items on departmental budgets refer to the changes in detail. For 2013, the expenditure affected by the restructuring are presented in the “Overview of departmental budget” tables in the departmental budget to which they belonged in that FY. For 2014 and 2015, they can be found in the departmental budget to which they belong after the restructuring. The major revenue or expenditure items are explained under the reporting items on

9 departmental budgets to which they have been shifted as from FY 2014. All other findings of audit and advisory work (items A and B) are allocated to the departmental budget of the department which is now responsible after the restructuring.

Part I General financial management

1 Financial audit of the federal accounts for FY 2013

As provided for by Art. 114.2 of the German Constitution, we audited the regularity of the annual accounts. In doing so, we did not find any variances significant for the discharge procedure between the figures stated in the accounts and in the underlying records. In budget execution, expenditures totalled €307.8 billion and thus where lower than estimated by €2.2 billion. Total revenues1 exceeded the budget amount by €0.9 billion. At €22.1 billion, net new borrowing was by €3.0 billion lower than budgeted. The new constitutional debt rule, which was binding for the first time in 2011, was complied with. The volume of commitments entered into totalled €133.4 billion. By the end of FY 2013, the Federal Government and its off-budget federal entities had granted guarantees in the amount of €450.0 billion. The Federal Government’s net worth was €231 billion, including off-budget federal entities. Liabilities (including contingent liabilities for public service retirement and health care benefits) amounted to €1,731 billion.

1.1 Status of discharge procedure

Concerning FY 2012, the two Houses of Parliament granted discharge. The respective resolutions were based on the 2012 annual accounts and our 2013 annual report on federal financial management including the supplementary audit findings presented in April 2014.

1 without proceeds from net borrowing and seigniorage

1.2 Budget and capital accounts 2013: no irregularities found

Since FY 2009, the Federal Ministry of Finance has presented the budget and capital accounts separately rather than as an aggregated annual account. In conjunction with its field offices, the German SAI conducted sample audits to verify the regularity of these accounts. We did not find any deviations significant for the discharge procedure between the amounts stated in the accounts and those in the underlying records.

On the basis of samples, we checked the extent to which federal budget revenues and expenditures were properly supported by vouchers. A mathematical-statistical method was used to do so. 1,321 of the individual booking entries recorded in the Federal Government’s accounting system were chosen by random selection. We found significant errors in 3.5 per cent of the audited booking entries. Accordingly, the individual booking entries recorded in the accounting system were duly supported by back-up documents in most cases.

1.3 Budget execution and supplementary budgets

The 2013 Budget Act of 20 December 2012 provided for revenues and expenditures of €302.0 billion. The Federal Finance Ministry’s net borrowing power was limited to €17.1 billion. According to the new debt rule enshrined in the German Constitution since 2011, the general ceiling for net borrowing was €41.4 billion. In order to finance the reconstruction aid fund which was established as a consequence of the damages incurred during the 2013 spring flood, a supplementary budget had to be adopted in the course of FY 2013. Under the supplementary budget, the estimated revenues and expenditures totalled €310.0 billion with net borrowing of €25.1 billion.

1.4 Overview of financial statements on budget execution

Budget execution developed more favourably than expected. With €307.8 billion, actual expenditure fell short by €2.2 billion of the €310.0 billion stated in the supplementary budget. Revenues (excluding net new borrowing and seigniorage) were by €0.9 billion higher than provided for in the supplementary budget.

The new debt rule (stipulated in Arts. 109, 109a, 115 and 143d of the German Constitution) was applied for the first time in 2011. This rule is to ensure long- term sustainability of the federal and state budgets.

The new debt rule was complied with both by the 2013 budget estimates and by the supplementary budget, and by budget execution.

The actual amount of structural net borrowing in FY 2013 was €3.6 billion, equivalent to 0.14 per cent of gross domestic product (GDP). Thus, structural net borrowing was already lower than the ceiling of 0.35 per cent of GDP prescribed as from FY 2016.

Revenues (excluding net new borrowing and seigniorage) were by €1.5 billion or 0.5 per cent respectively higher than in the previous year. Tax revenues increased by €3.7 billion, while other revenues declined by €2.2 billion.

In 2013, total budgeted expenditure increased by €1.1 billion or 0.3 per cent compared to the previous year.

1.5 Details of revenues and borrowing powers

The portion of the profit of the Bundesbank (German central bank) that exceeds the relevant federal budget estimate is paid into the Investment and Redemption Fund. Revenues from Bundesbank profits totalled €0.6 billion, while €1.5 billion were estimated. Thus, it was impossible to retire any debts of the Investment and Redemption Fund in 2013.

For the first time ever, the 2013 budget account includes an “Overview of the Federal Government’s losses of revenue”. In addition to established claims, this overview also presents limited and unlimited write-offs, comparisons and contract amendments as well as waivers due to other reasons. The total volume of the losses of revenue amounts to €974 million in FY 2013.

The 2013 Budget Act conferred borrowing powers of €25.1 billion for covering expenditures. In addition, there was a residual borrowing authorisation of €5.6 billion from the previous year. Since the borrowing powers conferred by the 2013 Budget Act were not fully exhausted, it was not necessary to use the residual borrowing authorisation from 2012. It lapsed with the expiry of the year 2013. Residual borrowing powers from 2013 in the total amount of €3.0 billion are available for the 2014 budget.

1.6 Excess and extraordinary budget expenditure

In FY 2013, the Federal Government incurred excess expenditures of €1.1 billion and extra-budgetary expenditures of €0.8 billion. The aggregate amount is equivalent to 0.61 per cent of budgeted total expenditures. At €1.9 billion, the amount is significantly higher than in the previous year, when it totalled €105 million. All excess and extra-budgetary expenditures were set off by expenditure reductions on other budget items.

In four cases, government departments exceeded the appropriated expenditures without approval by the Federal Finance Ministry. This concerns expenditure in the aggregate amount of €10.0 million. We expect all financial management officers in the ministries and subordinate agencies to prevent excess and extra-budgetary expenditure lacking approval by the Federal Finance Ministry.

1.7 Unexpended balances

The amount in which the ministries recognise unexpended balances from the past financial year is usually not yet known when the budget account is drawn up. Here we can therefore only present an overview of the past FY’s expenditure authorisations that are eligible for carry-forward and report on the unexpended balances recognised in the previous year.

At the end of FY 2012, €12.4 billion were eligible for carry-forward. Out of this amount, the ministries recognised unexpended balances of €10.3 billion, i.e. €1.0 billion more than at the end of FY 2011.

In FY 2013, €13.4 billion of expenditure authorisations that qualified for carry- forward were not used. As a matter of principle, this amount is available for recognising unexpended balances. It is €1.1 billion higher than in the previous year.

A special feature of expenditure authorisations which come under devolved budget management is that, as a matter of principle, they need not be compensated for by savings in the relevant ministry’s own departmental budget. They are available without any time limit. The ministries recognised unexpended balances of €1.443 billion out of the €1.467 billion of expenditure authorisations that are eligible for carry-forward into FY 2013. According to this, the ministries want to have more than 98 per cent of the unused expenditure authorisations at their disposal in future years. In view of Parliament’s power to control spending, we expect all ministries to observe the requirements when assessing their concrete needs. They have to apply a rigorous standard when recognising unexpended balances.

1.8 Commitment authorisations

The FY 2013 budget provided for commitment authorisations of €53.0 billion. Extra and extra-budgetary commitment authorisations of €0.2 billion were appropriated. Actual commitments made under these authorisations totalled €31.5 billion. The utilisation rate thus was 59 per cent. In addition, the federal government departments entered into other commitments amounting to

€15.4 billion due to other legal requirements or for ongoing activities. The utilisation rate for FY 2013 is lower than in the previous year. We expect all federal government departments to carefully assess the commitment authorisations’ compliance with the formal requirements for inclusion in the budget.

As of 31 December 2013, payments to be made under commitments entered into still totalled €133.4 billion. Of the aggregate amount of commitments entered into, €36.6 billion refer to FY 2014 and €27.2 billion to FY 2015. These figures do not yet take into account new commitments made in FY 2014.

1.9 Guarantees

Guarantees are instruments by which the Federal Government supports projects meriting assistance in terms of public interest. They also back up the Federal Government’s financial commitments vis-à-vis international financial institutions. The 2013 Budget Act had authorised the Federal Finance Ministry to grant guarantees up to an amount of €449.4 billion. At year-end 2013, the Federal Government had actually assumed guarantees in the amount of €342.1 billion.

In addition, the Monetary Union (Financial Stability) Act authorised the Federal Finance Ministry to assume guarantees of €22.4 billion as collateral for loans from KfW (Germany’s development loan corporation). It used this authority in the full amount to guarantee loans to Greece. Under the Act on the Assumption of Guarantees in Connection with a European Stabilisation Mechanism of 22 May 2010, the Federal Finance Ministry was authorised to assume guarantees of €211 billion for financing operations carried out by the European Financial Stability Facility. The Ministry had used this authority with €84.2 billion by year-end 2013.

1.10 Funds under devolved financial management

Expenditure authorisations may be budgeted as funds for devolved financial management, if this promotes economical use. In contrast to other budget funds, they remain available for the specified purposes in future years without any time limit. If budget funds are brought under the devolved management regime, the amounts concerned need to be posted as expenditure and are thus stated in the budget account. However, they actually need not yet have been paid to third parties. This adversely affects the fair presentation of the accounts rendered by virtue of a constitutional requirement and thus also Parliament’s ability to control spending.

For the first time, the Federal Finance Ministry included an aggregate overview over the balance of funds subject to the devolved management regime in the 2009 budget account. This balance totalled €1.037 billion of funds belonging to nine departmental budgets at year-end 2013. Compared to the previous year’s €931 million, the aggregate balance increased by €105 million, equivalent to 11.3 per cent.

1.11 Capital account

The administrative regulations under Arts. 73, 75, 76, 80 and 86 Federal Budget Code have applied for the Federal Government’s bookkeeping and accounting since 1 January 2013. The valuated federal assets including those of the off- budget federal entities totalled €231 billion at year-end 2013. Liabilities (including provisions) totalled €1,731 billion. These figures do not include assets and liabilities of federal bodies that constitute separate legal entities. Major assets, e.g. the federal real estate with infrastructure assets included and moveable assets are not yet recorded.

As an essential requirement for a complete capital account, the Federal Finance Ministry should put into place a comprehensive computer-assisted integrated financial accounting system pursuant to Art. 73.2 Federal Budget Code.

1.12 Off-budget federal funds

The budget account discloses 27 separate property, special-purpose and trust funds of the Federal Government.

The Financial Market Stabilisation Fund set up in response to the financial crisis was designed to help financial institutions to overcome liquidity shortages and to strengthen their equity capital base. The Fund is managed by the Federal Agency for Financial Market Stabilisation. Currently, German institutions can apply for stabilisation assistance pledged by the Fund by year-end 2014. Stabilisation assistance pledged by the Fund will continue to be provided until the due date or scheduled repayment, even beyond 2014. As the rules of the European Union for a single resolution mechanism should not apply until 2016, the Federal Government intends to extend the deadline for stabilisation assistance pledged by the Fund up to year-end 2015.

In 2013, the financial institutions returned the last still outstanding guarantees. None of the granted guarantees expired so that the Fund did not incur any losses. Moreover, the FMS strengthened the equity capital base of financial institutions by means of capital injections. At year-end 2013, these capital injections totalled €17.1 billion.

The deficit accumulated since the establishment of the Fund totalled €21.5 billion on 31 December 2013. The loss will be carried forward until the Fund is wound up. Any loss remaining after the Fund’s winding-up will be shared by the Federal Government and the German states in the proportion 65:35, with the states bearing losses in the amount of up to €7.7 billion.

Another off-budget federal entity, the Energy and Climate Fund, is to provide the resources for promoting an environmentally friendly, reliable and affordable energy supply and national as well as international climate change mitigation. To finance programme expenditure, the proceeds from auctions of tradable emissions allowances are to be allocated to the Fund. The prices for CO2 certificates in 2013 were lower than originally forecast and this led to a reduction of the Fund’s revenues. In response, the Federal Finance Ministry

18 allocated only €1.1 billion of the originally budgeted €2.0 billion to the seven line ministries in charge of managing Fund resources.

In 2013, the uncertainty as to the amount of the Fund’s revenues from selling

CO2 certificates led to planning uncertainty on the part of both the financial managers and the potential contractors. Up to now, we still cannot see to what extent the partial segregation of the Fund’s resources from the federal budget leads to a better discharge of functions and more efficient financial management. To ensure the efficient, transparent and coordinated use of resources, it would be more expedient to state all resources in the federal budget. Against this background, we still do not see any necessity to maintain the Fund.

To repair the damage caused by a heavy flood in some German states in May and July 2013 and to reconstruct the destroyed infrastructure, a Reconstruction Aid Fund was set up as an off-budget federal entity. Where the damage caused by the flood is not compensated by insurers or other third parties, financial assistance can be given from the Fund.

In 2013, federal budget funds of €8 billion were injected into the Fund. The Federal Government pre-finances the Fund’s resources. In the years 2014-2033, the German states will contribute funds in annual instalments whose aggregate amount will be €4.04 billion. In this way, they will amortise 50 per cent of the resources made available to them through the Fund and take up the related borrowing costs.

In 2013, about €560 million were disbursed from the Fund. This small outflow of resources is mainly attributable to the fact that it took some time to launch the Fund’s programmes. An additional factor is that the large volume of building work to be financed from the Fund require prolonged lead time for planning.

According to current findings, damage to federal assets is significantly lower than originally estimated. Therefore, the Federal Government has adopted a Bill providing for the partial dissolution of the Fund and intends to reduce by €1 billion

19 the expenditure on the reconstruction of federal infrastructure assets budgeted for 2014 and to allocate that amount to the federal budget.

2 Trends in federal public finance – ensuring a balanced budget without net borrowing

2.0

The key estimates that provide the financial framework for the 2015 draft budget and the medium-term financial plan up to 2018 reflect the Federal Government’s expectation that the stable economic trend will continue. For the first time since 1969, the 2015 draft budget does not envisage net borrowing. The budgets should also be balanced without new debts in the years 2016- 2018. However, the plans no longer include the budget surpluses of €15 billion envisaged in the previous financial plan. They are used to partially cover additional expenditure. The favourable estimates for key items of the budget are largely attributable to a continued decrease of interest expenditure, expected higher tax revenues and the reduction of the 2014 and 2015 federal grant towards the Umbrella Health Fund. No other measures for permanent budget discharge are envisaged. In our estimate, there are a number of financial burdens and risks which might adversely affect the Federal Government’s favourable budgetary position. Above all, these potentially adverse factors include the impact of benefit expansion in pension insurance and the granted, promised or demanded financial concessions of the Federal Government to the German states and communities. In addition, there are long-term risks that derive from the European sovereign debt crisis which has not yet been overcome. The Federal Government’s scope of action for further financial concessions to the German states and communities seems to be exhausted given the considerable financial burdens and risks. The Federal Government should rather consistently ensure to contribute to the compliance with national and European stability requirements.

2.1 Key budgetary figures and ratios up to 2018

The positive expectations resulting from the Federal Government’s projection of spring 2014 have an impact on the key figures of the 2015 draft budget and the medium-term financial plan up to 2018. In 2015, expenditures will rise to

€299.5 billion which is an increase of 1.0 per cent compared to the 2014 target figure. Tax revenues, however, are estimated to increase by 3.9 per cent to €278.5 billion. Net borrowing is forecast to decline to zero, while the 2014 target figure is €6.5 billion.

The expenditures of the Energy and Climate Fund are budgeted outside the federal budget. The Fund’s separate budget has a volume of €1.7 billion in 2015. Since FY 2014, the Fund has received grants from the federal budget. In 2015, this grant amounts to €781 million. We repeatedly pointed out that the Fund requires critical assessment in terms of budgetary law and financial management.

According to the medium-term financial plan, expenditures will rise to €329.3 billion up to 2018. On the revenue side, the increase of tax revenues which has been observed since 2010 is expected to continue. For 2018, tax revenues of €311.8 billion are estimated.

Compared to the previous medium-term financial plan, the key figures on net borrowing have declined by €15.0 billion for the 2015-2017 period. The budget surpluses included in the previous medium-term financial plan have completely disappeared. Additional expenditure results, above all, from the priority measures stipulated in the coalition agreement. The most important items under this agreement are higher expenditure for research and education including financial support of the German states in this area. Furthermore, additional expenditure especially results from the areas transport, pension insurance, basic cover for jobseekers, parental benefits and economic cooperation and development. Moreover, the new medium-term financial plan does no longer contain the revenues envisaged in the previous medium-term financial plan from 2015 onwards which result from a financial transaction tax. Lower financial burdens than estimated in the previous medium-term financial plan again mainly result from interest payments. In the 2015-2017 period, they will once more be lower than assumed in the previous medium-term financial plan, this time by €9.2 billion. In addition, in 2015, the federal grant to the Health Fund will be lower than estimated. In 2016 and 2017, the prudential estimate of an overall

22 decline in revenue will be reduced by €5.6 billion.

The new financial burdens are to be fully compensated by the reduced burdens mentioned above and by the renunciation of budget surpluses and, consequently, debt reduction. Savings in the expenditure budget or structural improvements of the revenue budget, e.g. by reducing or eliminating tax privileges or a reform of value-added tax (VAT), have not been planned. This leads to an increasing ‘petrification’ of the federal budget at least in the medium and long term.

An additional factor is the vulnerability of the federal budget to various planning risks and uncertainties in projection. These concern e.g. legal disputes about the nuclear fuel tax, the risk of changes in the overall economic trend and in interest rates as well as imponderabilities in connection with the financial and sovereign debt crisis in the euro area. In addition, there are structural burdens resulting mainly from a number of financial concessions to the German states. Further impending risks may result from the upcoming reform of the financial relations between the Federal Government and the German states. Against this background, it remains to be seen whether the favourable key budget figures will be confirmed when the medium-term financial plan is extended for another year.

2.2 Compliance with the debt restriction rule

The new debt restriction rule has applied since FY 2011. It generally prescribes a binding structural borrowing limit of no more than 0.35 per cent of gross domestic product (GDP). The Federal Government must reduce its structural new borrowing in equal steps in order to comply with this borrowing limit by no later than 2016. In fact, the 2012 and 2013 final budget accounts have already not exceeded this limit. Even according to the 2014 target figure, the 2015 draft budget and the medium-term financial plan up to 2018 the net borrowing will be significantly lower than the respective maximum permissible value. However, this seems to be advisable in order to alleviate the demonstrated burdens and risks.

Concerning the application of the debt rule in budget execution, we wish to draw attention to the following aspects: • The borrowing figures estimated in the 2014 budget, the 2015 draft budget and the medium-term financial plan up to 2018 for which the debt restriction rule is relevant are incomplete since they do not include the financial deficits of the off-budget Reconstruction Aid Fund. Even if there are uncertainties about the outflow of resources, we recommend that the financial deficits be taken into account when calculating the admissible maxium amount of net borrowing. Based on the favourable results of budget execution in 2011- 2013, the control account has shown a large surplus of €85.7 billion after only three years. In our opinion, such ‘credit notes’ are incompatible with the function of the control account. The Legislature responded to this assessment by ensuring that the cumulative balance of the control account will be cancelled at year-end 2015, thereby preventing the transfer to the ‘normal operation’ of the debt rule from 2016 onwards. • In spite of stabile macroeconomic framework data and steadily increasing tax revenues, the figures for the cyclical component are negative for each of the years 2012-2017. It must be ensured that the cyclical adjustment procedure does not lead to an uninterrupted series of negative cyclical components beyond the economic cycle and thus to additional discretionary scope for new borrowing. One viable method for checking the cyclical effects would be setting up sort of account for balancing cyclical fluctuations. The cyclical components as determined after the closing of the financial year would be entered into this account. If they do not approximately balance within an economic cycle, consequences could be drawn for the calculation method. • The payments from the federal budget to the ESM in the total amount of €21.7 billion are not taken into account for the purpose of calculating the deficit. It remains unclear whether these payments to the ESM will in the long run generate an equivalent growth of assets. Should the ESM Member States become obliged to pay up further portions of callable capital in order to cover losses of the ESM, such payments will have to be taken into account for calculating the deficit.

2.3 Top-down approach and decision on financial framework figures

Since 2012, the Federal Government has drawn up its budget proposal by means of the top-down procedure. For this purpose, the Federal Government determines, in March of the budget planning year, key figures for revenues and expenditures of all departmental budgets in the further budgetary procedure within the government. The Parliamentary procedure of budget debate remains unchanged.

The ceilings for net borrowing set in the financial framework decision of 12 March 2014 were undercut both in the 2015 draft budget and the medium-term financial plan up to 2018. The experience gained from four successive budget procedures using the top-down method is positive. It appears that the top-down method is suitable to set strategic targets early, taking regard to the borrowing limit, and, where necessary, combine them with the required consolidation measures. It remains to be seen whether the top-down method will also prove successful in case of an economic downturn.

2.4 Trend and structure of expenditures

Social expenditure and interest expenditure are major items of the federal expenditure budget. In the 2014 budget, €147.9 billion are estimated for social expenditure. According to the 2015 draft budget, social expenditure is estimated to increase to €152.4 billion. This is attributable mainly to increasing grants from the federal budget to the social security schemes (which have contribution- based budgets of their own) and the increase in federal funding of benefits and services that formerly had to be financed by the states and local authorities. As a result, the portion of social expenditure of the total federal expenditure again significantly increases to 52 per cent by 2018. This is attributable mainly to the Federal Government’s intention to reduce the communities’ financial burden in the area of integration assistance for disabled persons with €5.0 billion annually as of 2018. In anticipation of this, the communities should already be supported with €1.0 billion each year between 2015 and 2017.

Interest expenditure and social expenditure account for almost 60 per cent of the budget total as estimated in the 2015 draft budget and are thus equivalent to almost two thirds of federal tax revenue. Until the end of the medium-term financial planning period, the share of investments (capital expenditure) will decline to 8.3 per cent.

Expenditures for supporting the various retirement benefit schemes (statutory pension insurance, special schemes for federal workers and employees of the formerly government-owned railway, postal and telecommunications services, farmers and beneficiaries of special retirement benefit schemes that originated in the former German Democratic Republic) amount to more than €108 billion in FY 2015. This accounts for more than one third of the total federal expenditure budget. The major item in this category is federal grants of €84.9 billion to the statutory pension insurance system in the 2015 draft budget. These grants will further increase by almost €10 billion by 2018. The comparatively disproportionate increase of expenditure is, inter alia, attributable to the expansion of the pension insurance system.

Expenditure on labour market policy is disclosed in the federal budget and the separate budget of the Federal Employment Agency, and it highly depends on economic development. Based on the Federal Government’s spring projection, the Federal Employment Agency expects surpluses for 2015 and the other years of the medium-term financial planning period up to 2018. The positive estimate of the medium-term economic and labour market development also curbs the labour market expenditure in the federal budget. Since its all-time high in 2010, labour market expenditure has dropped to €31.4 billion in the 2014 budget. This is the lowest level since the 2004 labour market reform. The federal budget’s labour market expenditure is expected to be about €32 billion in the 2015 draft budget and the medium-term financial plan up to 2018.

The expenditure of the statutory health insurance scheme increased on average by 3.7 per cent each year within the last decade. The highest growth rates were in the years 2007-2009 and in 2013. Although expenditure increased, deficits could be largely avoided since 2004. The Umbrella Health Fund entrusted with

26 the revenues’ administration and allocation and the statutory health insurance had considerable financial reserves at year-end 2013. This is, inter alia, attributable to the Federal Government’s increasing funding contributions. The financial planning period up to 2018 provides for €65.0 billion for the statutory health insurance scheme’s financial support. €11.5 billion are estimated for 2015. In spite of legal measures to limit the development of expenditure, e.g. in the pharmaceutical sector, a further increase in expenditure is estimated for the next years. It remains to be seen whether the efforts to keep the finances of the statutory health insurance scheme stable and thus to avoid at least an increase of the federal budget grant to this scheme will be successful.

According to the 2015 draft budget, interest expenditure is to drop to €27.0 billion. Compared to the previous financial planning estimates, the reductions for the years 2015-2017 will total €9.2 billion. The reduction in interest expenditure already forecast in previous forward projections of the medium-term financial plan thus continues. The Federal Government continues to benefit from the all-time low in interest rates. However, an increase in the level of interest rates would have a considerable impact on federal interest expenditure due to the annual gross borrowing of about €200 billion. Assuming a moderate increase in the level of interest rates, interest expenditure is estimated to increase to €34.4 billion by the end of the financial planning period in 2018.

2.5 Trend and structure of revenues

Tax revenues are by far the biggest source of federal revenues. There has been a continuing increase since 2010 (€226.2 billion). According to the 2015 draft budget and medium-term financial planning up to 2018, this trend will continue. For FY 2015, €278.5 billion have been budgeted under this item. In 2017, tax revenues are estimated to exceed the €300 billion level for the first time and to further increase to €311.8 billion in 2018. Since there is still uncertainty about the introduction of a financial transaction tax, the revenues of €2.0 billion per year which are in the previous medium-term financial plan from 2015 onwards are no longer included in the 2015 draft budget and in the new medium-term

27 financial plan up to 2018. The Federal Government’s share in total tax revenues will decrease by approximately half a percentage point to 42.2 per cent compared to the 2012 figure until the end of the financial planning period in 2018.

The supplementary federal grants paid under the vertical financial equalisation scheme have declined since 2008. According to the 2015 draft federal budget, they will total €9.9 billion. The major portion of these supplementary federal grants goes to the eastern German states and Berlin. The primary purpose of these supplementary federal grants for special needs is to compensate for extra burdens stemming from Germany’s former partition, the disproportionately low financial strength of local authorities and the costs of structural unemployment in the eastern German states. Although these grants from tax revenues are decreasing and will be phased out in 2019, the Federal Government’s financial commitments under Solidarity Pacts I & II remain at a high level.

The 2015 draft budget estimates other revenues to be at €21.7 billion and thus at the level of the 2014 target figure. They are estimated to decline to €20.1 billion by the end of the medium-term financial planning period in 2018. The importance of the proceeds generated by the sale of shareholdings and other capital assets diminishes. The 2015 draft budget still estimates revenues of €0.9 billion for this purpose. The following financial planning years do not provide for significant proceeds of the sale of investment assets.

2.6 Net new borrowing

New borrowing was necessary in the past to balance the successive annual budgets. Since the early 1990’s, the so-called borrowing ratio, i.e. the amount of net borrowing as a percentage of total expenditure, repeatedly exceeded 10 per cent. Even in years with normal or even favourable economic growth, the Federal Government’s net borrowing regularly was in range of tens of billions of euros. Last but not least to the stricter limitations imposed by the new debt rule, no net borrowing is projected in the 2015 draft budget and in the medium-term financial plan up to 2018.

2.7 Outstanding debt and debt service

The Federal debts consist of core budget debt and debts incurred by the off- budget federal entities. At year-end 2013, aggregate federal debt totalled €1,277.3 billion of which €1,085.8 billion was part of the core budget and €191.5 billion belonged to the off-budget federal entities. The current debt level is thus five times higher than in the early 1990’s. It also strongly increased in relation to Germany’s economic strength. In 2010, the support measures for resolving the financial market crisis pushed it up to more than 50 per cent of GDP. This proportion has been declining since and is forecast to be 44 per cent at year-end 2014.

As a result of growing debt levels, the Federal Government must borrow ever higher amounts in order to replace previous years’ loans falling due. According to the medium-term financial plan, annual gross borrowing is about €200 billion. In view of the current all-time low in interest rates, the federal budget is exposed to considerable risks due to interest rate fluctuations in the money and capital markets.

2.8 Guarantees

Burdens and risks with a medium and long-term impact include indemnification risks from sureties, guarantees and other warranties assumed. The Budget Act significantly increased the aggregate ceiling for the assumption of guarantees in connection with the measures to avert the economic crisis. The 2015 Budget Act provides for a guarantee ceiling of €476.9 billion. Outstanding guarantees totalled €342.1 billion at year-end 2013. Thus, the utilisation ratio is 76.1 per cent.

In addition to the guarantees authorised by the Budget Act, the Federal Government granted additional guarantees of up to €400 billion in favour of certain financial institutions. By year-end 2013, the amount of outstanding guarantees was reduced to zero and no liability did materialise under these guarantees. With the

29 implementation of the Bank Recovery and Resolution Directive, the application deadline for support under the Financial Market Stabilisation Fund Act is extended once more to year-end 2015. At the beginning of 2011, the Restructuring Fund was set up. It is to help stabilise financial institutions in distress. It is financed from a bank levy and by extraordinary contributions where necessary. Moreover, the Fund is authorised to give guarantees of up to €100 billion and to grant loans of up to €20 billion. This authority has not been exercised so far.

Germany’s guarantee commitments in connection with the European measures to stabilise the euro are not included in the ceiling authorised under the Budget Act. This covers the loans to Greece of €52.9 billion under the first assistance programme for that country. Lending of up to €60 billion is authorised under the European Financial Stabilisation Mechanism. In case of need, European Union loans are available to fund this lending. The time-limited special-purpose vehicle European Financial Stability Facility (EFSF) is to avert any threatening insolvency of the euro area member states. As collateral for refinancing in the capital market, the EFSF was granted guarantees of up to €780 billion from the euro area member states. Since 2013 and after an initial phase of parallel operation, the EFSF has been replaced by a permanent crisis fund, the European Stability Mechanism (ESM). The ESM is financed from a mix of paid- in capital of €80 billion and callable capital of €620 billion. Its maximum lending volume is €500 billion.

In the period 1991-2013, federal revenues from guarantees exceeded federal expenditures on compensation payments for defaults by €17.4 billion. However, this favourable financial result has to be seen in light of increased risks due to financial assistance under the euro rescue measures. The German share in the financial assistance granted so far totalled about €310 billion. Whether and to what extent the risks assumed by giving guarantees will materialise as a burden on the federal budget will depend on the further development of the European sovereign debt crisis.

2.9 European fiscal rules and the national debt rule

One result of the European debt crisis is that the Member States reinforced the monitoring and coordination procedures at the European level. Since 2011, various reform measures have been initiated which are designed to tighten fiscal discipline in the Member States and to deepen fiscal coordination.

One component of the reform measures is the ‘Fiscal Compact’ that came into force in 2013. The medium-term fiscal objective set by the Fiscal Compact is that the structural deficit is not to exceed 0.5 per cent of GDP. The aggregated German public budgets met this target already in 2012. However, Germany’s public debt to GDP ratio is expected to be significantly higher than the reference value of 60 per cent, the forecast being 75 ½ per cent of GDP at year-end 2014. Up to the end of the medium-term financial planning period in 2018, the ratio is to drop to 65 per cent and thus will comply with the debt ratio reduction targets laid down in the Fiscal Compact. The country-specific recommendations adopted by the European Council call on Germany to implement, inter alia, the debt brake coherently in all German states.

The Fiscal Compact Implementation Act amended the Budgetary Principles Act, imposing a 0.5 per cent of GDP ceiling for the aggregate structural deficit of Germany’s public sector. Moreover, the early warning system for preventing fiscal distress at federal and state level was complemented. The Stability Council as key agent within this early warning system has been given additional monitoring rights but it has still not been given powers to impose sanctions.

A targeted implementation of the budget monitoring procedure must be of special concern to the Federal Government, since the government has for years had proportionally higher deficits and debt ratios than states and local authorities. Additional financial burdens result from the government’s consolidation aids to five of the German states granted since 2011 with a view to support the introduction of the debt rule. The Federal Government made further financial concessions to the states, e.g. in the context of the implementation of the fiscal compact, the pre-funding of the share to the reconstruction aid fund and the confirmation of a Federal Participation Law in

31 the coalition agreement. There seems to be no further scope for Federal Government action. The Federal Government should rather consistently ensure to contribute to the compliance with national and European stability requirements.

Part II Cross-boundary and government-wide audit findings

3 Risks in the operation of IT systems relevant for payments

The management of federal budget funds is vulnerable to partly considerable risks in the IT systems of the fund-managing entities that are connected to the Federal Government’s central accounting system. Our auditors found large infringements of applicable regulations, e.g. non-compliance with the cross- check principle or excessive user rights. The IT systems often did not meet the requirements of information security in connection with operations. Together with the responsible line ministries, the Federal Ministry of Finance must speedily reduce the risks.

The computerised system for federal budgeting, cash management and accounting (financial management system) is the Federal Government’s central accounting system. Hundreds of users from federal, state and local government are connected to this financial management system by their own computerised systems (IT systems) via electronic interfaces. In this way, they manage federal budget funds, e.g. by arranging for disbursements. At present, more than 1,000 different payment and accounting systems are connected to the federal financial management system. As a rule, the funds’ managers are not required to seek permission for establishing such connection. It is sufficient if they notify the Federal Ministry of Finance of their IT system and certify that they comply with the minimum requirements promulgated by the Federal Ministry of Finance for the use of computerised procedures in connection with the federal financial management system. These minimum requirements call for elementary organisational and technical controls to ensure operational regularity and information security. In particular, this includes a security strategy, administrative instructions, separations of functions and the cross-check principle. Responsibility for the compliance with the requirements lies with the respective supreme federal authority.

Nearly all managers of federal funds audited by us did not comply with the minimum requirements established by the Federal Ministry of Finance. Apart from risk analyses of the systems, a lack of arrangements for security, data protection, data security and contingency plans for system failures have been noted. In most cases, unauthorised users – including external consulting firms – were able to make accounting entries in contravention of the cross-check principle and to change banks accounts data and system settings. The automatic logging of data changes was not effective as compensatory control because the same users were frequently able also to delete system logs, records of changes or bookkeeping data. In the course of systems operations, the funds’ managers rarely checked whether the IT systems were meeting the minimum requirements set by the Federal Ministry of Finance. They either lacked the necessary risk-consciousness or degree of IT literacy for assessing the risks.

We perceive an urgent need for action. The responsible entities must quickly identify and eliminate the risks inherent in the operation of the IT systems of the fund-managing entities or at least limit them to an acceptable level. Responsibility for compliance with the Finance Ministry’s minimum requirements does not only lie with the supreme federal authorities and the financial management officers. Being the department responsible for the budget, the Federal Finance Ministry has a comprehensive co-responsibility. It must urge consistent compliance with its minimum requirements. We shall step up our audit work on this issue.

4 To stipulate appropriate remuneration levels, clarity about services and costs is necessary

Two federal ministries were unable to reliably verify whether the lump-sum remuneration they paid to the Development Loan Corporation are appropriate. To do so, they must in future specify all services commissioned in sufficient detail. Moreover, the Development Loan Corporation has promised to improve its cost accounting system.

The Federal Ministry for Economic Cooperation and Development and the Federal Ministry for the Environment and Building commission the Development Loan Corporation to perform tasks in international cooperation. Essentially, the Corporation grants loans and subsidies from federal budget funds towards development cooperation and climate protection projects abroad.

We objected to the practice of the two Federal Ministries to pay lump-sum remuneration for the services provided by the Corporation without being able to verify the appropriateness of these remunerations. While the operation’s cost accounting system was methodologically suitable for such verification, it presented deficiency in practice. For instance, the Corporation was not able to link its annual costs to the individual projects and thus to the individual contract- awarding entities. The Corporation committed itself to improving its cost accounting.

We expect the two Federal Ministries to precisely specify the support services to be provided for the Corporation independently of individual projects when they commission services in future. In contrast to the Federal Ministry for Economic Cooperation and Development, we hold that the Ministry may award individual contracts in terms of topics and timing also for such services of the Corporation.

5 Federal Ministry of the Interior must ensure that rebates for pharmaceutical products imposed by statute are actually claimed

The Federal Government has a health benefit plan under which it pays part of the medical costs incurred by civil servants, judges and soldiers. On application, pharmaceutical companies grant rebates for pharmaceutical products whose cost has been reimbursed under the above health benefit scheme. Federal Authorities claim these rebates only partly. If all rebates were claimed, the Federal Government could save about €12 million annually in health benefit payments.

Effective from 1 January 2011, legislation requires pharmaceutical companies to grant rebates on prescription drugs to the Federal Government and other entities.

The federal authorities responsible for personnel management that are in charge of determining health benefit entitlements have to claim the rebates for prescription drugs from the pharmaceutical companies through a central clearing unit. That clearing unit is a joint venture of the private health insurance companies, various German states and the Federal Government.

The Federal Interior Ministry which is responsible for the law on the above health benefit scheme failed to monitor whether all federal entities in charge of determining health benefit entitlements participated in the rebate scheme. It therefore did not have information about whether all rebates due to the Federal Government were applied for and what amount of rebates the Federal Government has obtained so far. The Ministry issued that 50 per cent of the entities responsible for determining health benefit entitlements did not claim the rebates.

Our audit confirmed that the federal entities in charge of determining health benefit entitlements did not always claim the rebates on prescription drugs. If all these entities acted correctly, the Federal Government could save about €12 million annually in healthcare expenditure.

We consider it important that the Federal Interior Ministry takes steps to ensure that the Federal Government does not lose any rebate claims for pharmaceutical products.

6 Federal Ministry of the Interior needs to ensure that legal provisions are applied uniformly when civil servants’ salaries are determined for the first time

Newly hired civil servants may receive higher salaries, if they already have professional experience useful for their new jobs. The federal authorities act inconsistently in taking previous professional experience into account. The Federal Ministry of the Interior has to make sure equal treatment in similar cases.

Effective from 1 July 2009, the Civil Service Law (Restructuring) Act introduced a new basic salary system for civil servants. The salary scale is no longer based on age but on times of professional experience. On first appointment, a grade 1 basic salary is awarded; if times of previous professional experience are recognised, the salary grade will be a higher one.

Recognising times of previous professional experience is largely at the discretion of the authorities. We found that federal authorities decided inconsistently, although the previous primary occupation and the requirements in the new job were comparable. We also found inconsistent decision-making practices within departmental remits, where the ministries had delegated the power to decide about recognising previous professional experience as useful to subordinate authorities.

We pointed out the disadvantages of inconsistent practices to the Federal Ministry of the Interior. We recommended that guidance on the exercise of relevant discretionary powers be promulgated. This is to ensure that comparable cases are treated equally in the federal administration. Moreover, we asked the Ministry to evaluate the present regulations and to adjust them where appropriate.

Our audit findings and our recommendation prompted the Federal Ministry of the Interior to issue a circular to all federal authorities pointing out that, as a rule, previous professional experience has to be recognised. However, it did not issue guidance on the exercise of relevant discretionary powers.

In our opinion, the steps taken by the Federal Ministry of the Interior are not yet sufficient. We uphold our recommendation that the Ministry should promulgate

37 guidance about the exercise of such discretionary powers involving typification and schematisation of useful previous professional experience. This is the only way to ensure uniform application of the law. Moreover, the Ministry should evaluate the current regulations and adjust them where appropriate.

7 Expert opinion issued by the Federal Performance Commissioner provides guidance on the internal and external selection of staff

Based on audit findings developed by the Bundesrechnungshof, the Federal Performance Commissioner has published an expert opinion on the selection of staff in the federal administration. This opinion is to provide authorities with guidance on staff selection and to contribute to adequate and legally secure personnel management decisions.

Traditionally, the President of the Bundesrechnungshof simultaneously holds the office of Federal Performance Commissioner. In that capacity, he works towards the cost-effective discharge of federal government functions and a corresponding organisation of the federal administration.

Based on relevant audit results, the Federal Performance Commissioner assessed the procedure of internal and external staff selection. This assessment was based on weaknesses and similar sources of error found by our auditors in a multi-agency examination of the procedures for appointing staff to posts. The root cause of such deficiencies often was inadequate compliance with complex regulations and judicial precedent. The Federal Ministry of the Interior had not issued any guidance on staff selection procedures.

The deficiencies found and the lack of guidance from a central authority prompted the Federal Performance Commissioner to issue the expert opinion on the procedure of internal and external staff selection in the federal administration in his series of publications. This opinion summarises the relevant legal and administrative provisions and the judicial precedent set by the higher courts. By pointing out the decisive steps in the procedure, it helps the authorities with keeping abreast of recent judicial precedent. The Federal Ministry of the Interior has evaluated the opinion as helpful for practical personnel management.

By including the opinion as part of his series of publications, the Commissioner ensures that all interested parties have access to it. The opinion has also been posted on the internet (in German only) under www.bundesrechnungshof.de.

8 Remittance of compensation payments to the Federal Civil-Service Pension Fund ensured

Following our recommendation, the Federal Ministries of the Interior and of Finance have made new arrangements for the remittance of compensation payments to the Federal Civil-Service Pension Fund. The purpose of the new arrangements is to ensure that revenues to be applied to the later retirement benefits of civil service servants and judges will be received by the Fund completely and on a timely basis.

Effective 1 January 2011, the Federal Government and the German states have concluded a Treaty about the apportionment of pension liabilities in cases where civil servants change their public employer, i.e. are transferred between the federal and a state or local government civil service. In such cases, the previous public employer pays compensation to the new public employer. Thus, the former public employer contributes to future retirement benefit costs.

Where non-federal public employers pay such compensation, the respective amounts have to be remitted to the Federal Civil-Service Pension Fund. As from the year 2020, the retirement benefits for all federal civil servants newly hired after 1 January 2007 are to be financed from the Fund.

The former non-federal public employers had to pay compensation to the service centres of the federal finance offices. From there, the amounts were to be remitted to the federal ministries which had to pass them on to the Pension Fund. The Federal Office of Administration was charged with checking whether all compensation payments received were eventually paid into the Fund.

In the years 2012 and 2013, we audited the implementation of the above- mentioned Treaty by the federal authorities. We found that the procedure for receiving the compensation payments and passing them on to the Pension Fund was error-prone. Between January 2011 and June 2012, state and local governments remitted €22 million to the Federal Government, of which only €10 million were received by the Pension Fund. The difference of €12 million went into the federal budget as additional revenue and was spent. Moreover, the Federal Office of Administration was not informed whether and in what amounts compensation payments were received.

We recommended that the Federal Ministries of the Interior and of Finance should modify the procedure.

The two Federal Ministries have followed our recommendation. Now, the new public employer will collect the compensation payments from the former public employer and remits them to the Pension Fund twice a year. Moreover, the Federal Office of Administration will be furnished with summaries of their revenues from such compensation payments, enabling it to verify their complete remittance to the Fund.

By means of the new procedure, the Federal Ministries of the Interior and of Finance have made sure that these compensation payments are completely remitted to the Fund on a timely basis.

Part III Development of departmental budgets and department-related audit findings

Federal President and Federal President’s Office

9 Development of departmental budget 01

The Office of the Federal President assists the Federal President in the discharge of his functions as head of state of the Federal Republic of Germany. The head of this Office advises and informs the Federal President. He/she attends Cabinet meetings as State Secretary. The Office employs a staff of 180. The Federal President has one official seat and official residence each in Berlin and Bonn.

The office of the Joint Science Conference also comes under departmental budget 01. In FY 2013, the office had a staff of 20 and its expenditure budget totalled €1.8 million.

Departmental budget 01 Federal President and Federal President’s Office

2013 2014 2015 actual target draft budget figures figures

in € million Departmental expenditure 31.6 33.1 33.6 Departmental revenues 1.3 0 0 (established) posts Staff 197 199 199

In 2013, expenditure under departmental budget 01 totalled €31.6 million. The major portion of this expenditure (56 per cent) was accounted for by staff pay of €13 million and retirement benefits of €4.7 million. Other significant expenditure

42 items of the Office of the Federal President were those on facility management, charity, official events, travel and public relations.

German Bundestag

10 Development of departmental budget 02

The Lower House of Parliament is one of the five federal constitutional bodies. It is the directly elected House of the German Parliament. Together with the Upper House of Parliament it forms the Legislature of Germany within the system of separation of powers. It also decides about the federal budget and oversees the activities of the executive branch of government. The 18th German Bundestag was elected on 22 September 2013. In 2013, it had 631 Members representing four parliamentary groups. The 17th German Bundestag had comprised 620 Members representing five parliamentary groups.

To support the Bundestag’s work, a Bundestag Administration is in place, which has the rank of a supreme federal authority headed by the Bundestag’s President and has a staff of about 2,527 in 2013. Departmental budget 02 also includes the expenditures on the Parliamentary Commissioner for the Armed Forces, the Federal Convention (the body that elects the Federal President) and the Members of the European Parliament. In the past decade, total expenditures increased by 36.8 per cent from €520 million in FY 2004 to €711.4 million in FY 2013.

Departmental budget 02 German Bundestag

2013 2014 2015 actual target draft budget figures figures

in € million

Departmental expenditure 711.4 765.4 802.8 Departmental revenue 2.5 1.9 1.9

Commitment authorisations 34.3 23.7 13.8 (established) posts Staff 2,313 2,544 2,539

In FY 2013, this departmental budget consisted of the following broad categories of expenditure: • remunerations, grants and benefits for current and retired MPs (€308.7 million);

• personnel expenditure for the staff of the Bundestag administration (€133.5 million);

• grants to parliamentary groups (€83.9 million);

• management and maintenance of premises (€47.3 million);

• rents (€6.8 million);

• information technology for the Bundestag administration and the MPs (€27.9 million);

• visitor service and public relations (€16.6 million) and

• office supplies (€9.4 million).

Bundesrat

11 Development of departmental budget 03

The Upper House of Parliament, on which the 16 federal states are represented, is a constitutional body and part of the Legislature of the Federal Republic of Germany. It is the channel through which Germany’s constituent states are involved in federal legislation and administration and European Union affairs. It consists of members of the state governments. Depending on its number of inhabitants, each state has between three and six votes and as many representatives (currently 69 Members). To assist the Members with discharging their functions, a Secretariat has been set up which employs a staff of 188.

Departmental budget 03 Bundesrat

2013 2014 2015 actual target draft budget figures figures

in € million Departmental expenditure 21.5 23.0 23.8 Departmental revenue 0.2 0.1 0.1 (established) posts Staff 178 190 193

In FY 2013, expenditures under departmental budget 03 totalled €21.5 million. Since it is a purely administrative budget, personnel expenditure and expenditure on goods and services are usually its major expenditure items.

Federal Chancellor and Federal Chancellery

12 Development of departmental budget 04

Apart from the Federal Chancellery, departmental budget 04 is the source of funding for several central staff units, subordinate agencies of the Federal Government and numerous grantees. The four key areas within the remit of the Federal Chancellor are the coordination of the work of the Federal Government, public relations, the gathering of information for the Federal Government and the promotion of cultural activities and historical reappraisal.

In 2013, expenditures under departmental budget 04 totalled €2 billion.

Departmental budget 04 Federal Chancellor and Federal Chancellery

2013 2014 2015 actual target draft figures figures budget

in € million

Departmental expenditure 1,982.7 2,095.6 2,104.5

Departmental revenue 6.9 3.2 3.2

Commitment authorisations 121.1 183.2 98.6

(established) posts

Staff 3,558 3,711 3,702

• The Federal Chancellery has a staff of 520. It assists the Federal Chancellor with the discharge of their functions and prepares his/her decisions. Moreover, it coordinates the work of the federal ministries. In FY 2013, the expenditure for the Federal Chancellery totalled €46.4 million. About 71 per cent of this total was accounted for by personnel expenditure, about 23 per cent by expenditure on goods and services.

• The Federal Government’s Press and Information Office has a total staff of 460. It coordinates cross-departmental public relations and informs the public and the media about the Federal Government’s work and reports current news to the Federal Government and the Federal President.

• The Federal Government Commissioner for Cultural Affairs and the Media is responsible for the Federal Government’s activities in the fields of cultural and media policy. He/She has a staff of 215 and annually awards grants totalling €1 billion towards numerous institutions and events in nearly all fields of cultural activity.

• The federal broadcasting corporation Deutsche Welle with locations in Bonn and Berlin is a non-profit entity under public law. It is under the legal supervision of the Federal Government. In 2013, the Federal Government Commissioner for Cultural Affairs and the Media gave a grant of €277.6 million towards the operation and equipment of Deutsche Welle.

• The Federal Commissioner for the Files of the State Security Service of the Former German Democratic Republic is the custodian of the files of that Service and makes them available to private individuals, institutions and the public in accordance with the relevant legal provisions. The Commissioner has a staff of 1,776. In FY 2013, total expenditure amounted to €98.1 million.

Federal Foreign Office

13 Development of departmental budget 05

The Federal Foreign Office represents the interests of the Federal Republic of Germany abroad and maintains relations with foreign governments and international organisations. It consists of its headquarters in Berlin, a branch in Bonn and 229 foreign missions. In 2013, total expenditure amounted to €3.6 billion, equivalent to 1.2 per cent of total federal expenditure budget. Actual expenditure increased by €538.6 million compared to the previous year. For 2014, the budget estimate of €3.6 billion is equivalent to the amount of actual expenditure in 2013. The 2015 draft budget estimates a reduction to €3.4 billion for the Federal Foreign Office.

Departmental budget 05 Federal Foreign Office

2013 2014 2015 actual figures target figures draft budget

in € million Departmental expenditure 3,635.9 3,638.3 3,419.6 Departmental revenue 148.2 145.2 144.1

Commitment authorisations 437.2 1,839.4 1,107.5 (established) posts Staff 6,379 6,818 6,826

• The Federal Foreign Office spent two thirds of its total expenditure on foreign policy functions, especially on contributions to the United Nations and other international organisations, humanitarian aid and crisis prevention as well as on the maintenance of cultural relations with foreign nations.

The Office spent €469.1 million on crisis prevention and on the provision of humanitarian aid in cases of natural disasters and armed conflicts.

In FY 2013, the Federal Foreign Office spent €738.8 million on maintaining cultural relations with foreign nations. Of this total, €213.7 million were accounted for by promoting German partner schools abroad.

• One third of the Office’s total expenditure budget was spent on staff, premises and infrastructure of headquarters and missions abroad. The major expenditure item is personnel expenditure for the Office’s 12,000 staff worldwide. In 2013, the staff expenditure totalled €874 million. Most Federal Foreign Office staff are employed abroad. At its headquarters, the Office has about 2,040 (established) posts, compared to about 4,600 in Germany’s foreign missions. In addition, the foreign missions employ 5,200 local staff, while another 1,000 are secondees from other federal departments, e.g. Federal Ministry for Economic Affairs and Energy and Federal Ministry of Defence.

• The Federal Foreign Office obtained revenues especially from fees for processing visa and passport applications in its foreign missions. In 2013, such revenues totalled €114 million.

Federal Ministry of the Interior

14 Development of departmental budget 06

The Federal Ministry of the Interior is in charge of homeland security and civil defence. Other major areas of responsibility are immigration, integration and ethnic minorities, the promotion of top-level competitive sports, official statistics, matters relating to the eastern German states, political education and matters relating to churches and religious communities. In addition, the Ministry functions as ‘public service department’, dealing with the structural and organisational procedures of public administration – especially the reduction of administrative burdens and administrative realignment – as well as information technology and information security.

In FY 2013, the departmental expenditure budget 06 totalled €6.1 billion, equivalent to about 2 per cent of the total federal expenditure budget.

Departmental budget 06 Federal Ministry of the Interior

2013 2014 2015 actual target draft budget figures figures in € million Departmental expenditure 6,073.2 5,898.8 5,732.0 Departmental revenue 461.0 405.9 380.9 Commitment authorisations 358.3 688.8 609.2 (established) posts Staff 51,844 53,363 53,347

• The major expenditure item under departmental budget 06 is homeland security. In 2013, five agencies and 84.5 per cent of all posts and established posts had homeland security functions. Departmental expenditure on these functions totalled €3.8 billion, equivalent to two thirds of the total expenditure under departmental budget 06.

• €476 million were used in 2013 to fund programmes to promote the integration of migrants and refugees. The major portion of this amount was spent on integration courses and other measures of this kind. • The Federal Office for Migration and Refugees is also responsible for asylum procedures. After the all-time low in 2007 with 19,200 asylum applications, the number of applications increased to 77,300 in 2012. In 2013, 126,700 people have applied for asylum which is a considerable increase of 63.9 per cent compared to the previous year. The Federal Office for Migration and Refugees expects a further increase in asylum applications in the next years. It expects 160,000 asylum applications in 2014 and 200,000 in 2015. Due to the strong increase in the number of asylum seekers, the Federal Office for Migration and Refugees received 300 new posts and established posts and relevant material resources for this taks with the entry into force of the 2014 federal budget. The government draft of the 2015 federal budget provides for further 50 new posts and established posts as well as material resources. • Furthermore, the Ministry promoted top-level competetive sports by supporting numerous central projects (e.g. federal training centres, Olympic training centres, sports institutes, facilities for top-level competitive sports). In 2013, the Ministry spent €132 million on top-level competitive sports. • A major source of revenue for the Ministry were aviation security charges for checking air travellers and their luggage. In FY 2013, they amounted to about €338 million, equivalent to about 73 per cent of the Ministry’s total revenues. These revenues were matched by expenditures of €288 million paid to service providers that performed passenger and luggage checks.

Federal Ministry of the Interior

15 Federal Office of Administration often provides services for other authorities without receiving personnel or financial compensation for doing so

The Federal Office of Administration provides services for many federal authorities, e.g. allowance and travel expense accounting. It has not always received personnel or financial compensation for these services by the other authorities. Thus, the authorities for which the services are provided do not use their savings potentials.

Shared services centres centrally perform various horizontal tasks, e.g. payroll, travel expense and allowance accounting, for federal agencies. A large number of cases in the shared services centres allow handling each individual case with less personnel resources and thus more cost-effectively than could the authority for which the service is provided.

If one authority provides services for another, it will incur expenditures. Pursuant to the Federal Budget Code, these expenditures are to be compensated by the transfer of posts or in the form of ongoing payments. If the client and the shared services centre belong to the same department, the current administrative regulations do not necessarily require compensation.

The Federal Office of Administration within the remit of the Federal Ministry of the Interior is one of the federal administration’s large shared services centres. Our audit showed that the Office performed horizontal services for clients liable to provide compensation were performed without compensation in more than half of the cases. Thus, the contracting authorities can reassign the staff previously used for performing the services to other functions.

We objected to this and demanded that the Federal Office of Administration only undertake tasks against compensation. Furthermore, the numerous cases without compensation are to be settled retroactively as best as possible.

Resulting surplus posts in the benefitting authorities are to be abolished. This also applies if there are free staff resources available to undertake new tasks in the shared services centre.

Federal Ministry of the Interior

16 Enhanced funding of Olympic Training Centres

Olympic Training Centres annually receive several million euros of funding from the Federal Ministry of the Interior. The Centres partially used these funds improperly or inefficiently. The Federal Ministry of the Interior took up our recommendations. Thus, inter alia, it will arrange for regular in-depth audits to verify that the Olympic Training Centres use their funds efficiently, in compliance with the law and for federal tasks only.

The 19 Olympic Training Centres annually receive about €27 million from the Federal Government. The Centres partially used these funds improperly or inefficiently. E.g., they waived revenues by means such as commercializing their logo for advertising purposes. Such revenues could have reduced the Federal Government’s funding. The use of funds was only audited incompletely.

We urged the Federal Ministry of the Interior to only fund tasks for which the Federal Government is responsible. It should ensure that the Olympic Training Centres use all potential sources of revenues. The Federal Government’s funding is to be reduced accordingly. Furthermore, the staff of the Centres must be able to correctly apply the public procurement provisions and the law on travel expenses. In addition, we asked the Federal Ministry of the Interior to train the Olympic Training Centres’ staff and to arrange for regular and in-depth audit of the use of funds.

The Ministry wants to fund Olympic Training Centres’ federal tasks only and to

53 ensure that all sources of revenues are used. On behalf of the Federal Ministry of the Interior, the Federal Office of Administration will regularly train the staff and carry out in-depth audits of five Olympic Training Centres each year to verify that they have complied with the budgetary provisions.

We consider these measures appropriate for funding the Olympic Training Centres properly and efficiently.

Federal Ministry of Justice and Consumer Protection

17 Development of departmental budget 07

The Ministry’s main task is to prepare legislation. It has the lead responsibility for drafting Bills and statutory instruments in the fields of civil law, mercantile and commercial law, criminal law and the codes of criminal and civil procedure. Furthermore, the Ministry participates in developing Bills and statutory instruments for which other federal government departments have the main responsibility.

By virtue of an organisational decree issued by the Federal Chancellor on 17 December 2013, the responsibility for the protection of consumers‘ economic interests (consumer policy) was transferred from the Federal Ministry of Food and Agriculture to the Federal Ministry of Justice, while the Food and Agriculture Ministry retains the responsibility for consumer protection in food safety and quality matters.

Tasks cover the Federal Court of Justice, the Federal Administrative Court, the Federal Finance Court, the Public Prosecutor General of the Federal Court of Justice, the Federal Patent Court, the German Patent Office and the Federal Office of Justice.

In FY 2013, the Ministry spent €592.7 million, equivalent to 0.2 per cent of total federal budget expenditure. This was matched by revenues of €493.6 million, 88 per cent of which were attributable to the German Patent Office and the Federal Office of Justice.

Departmental budget 07 Federal Ministry of Justice and Consumer Protection

2013 2014 2015 actual target draft figures figures budget in € million Departmental expenditure 592.7 648.1 663.0 Departmental revenue 493.6 464.8 480.3 Commitment authorisations 122.8 149.6 10.5 (established) posts Staff 4,351 4,776 4,805

• The formation of the new Federal Government in December 2013 had far-reaching effects on the structure of the Federal Ministry of Justice and Consumer Protection. The Ministry was given both an additional Parliamentary State Secretary and a Permanent State Secretary and respective support staff. The latter include Private Secretaries, office secretaries and chauffeurs. On the whole, the Ministry increased its senior staff and related support staff by 23 (established) posts. Given the extension of its remit to consumer policy, 40 (established) posts were transferred to it from the Food and Agriculture Ministry. Two established posts and funds for three temporary employees were transferred to the Justice Ministry from the Federal Office of Consumer Protection and Food Safety. • Personnel and retirement benefits were major expenditure items under departmental budget 07. In 2013, they (incl. remittances to the retirement benefit fund) accounted for 75 per cent (€444.6 million) of total expenditures. The federal government department spent about 19 per cent

(€113.7 million) on the procurement of goods and services such as rents, IT and needs, e.g. telephone, stationary etc. • In proportion to the volume of departmental budget 07, the amount of commitment authorisations for the years 2013-2014 is rather high. The purpose of most of them was to permit the signing of lease contracts for the Ministry and its subordinate entities. • In 2014, the inclusion of consumer policy in the Ministry’s remit resulted in an increase by €33 million of the departmental expenditure budget. €28.4 million of the latter amount are accounted for by the newly created programme chapter on Consumer Policy, in which especially grants towards the promotion of consumer protection are budgeted. Another €4.6 million are accounted for by personnel and material expenditure. • The Ministry intends to make consumer policy one of the focal points of its activities in the coming years. Hence, it intends to spend €10.7 million on consumer information in 2014, which is nearly twice the amount spent in 2013. These funds will be primarily allocated to projects of the consumer organisations. In 2014, €2.5 million of the latter amount are to go into start- up funding for the ‘market watchdogs’ for the financial market and the ‘digital world’ called for by the coalition agreement.

Federal Ministry of Justice and Consumer Protection

18 Federal Office of Justice must ensure the fully and timely collection of fees charged for issuing certificates of conduct

The Federal Office of Justice does not ensure full and timely collection of its share of the fees charged for issuing certificates of conduct. Certificates of conduct may be applied for at residents’ registration offices against payment of a fee. Municipalities forward such applications to the Federal Office of Justice, which issues the required certificates. Three fifths of the fees are to be remitted to Federal Government. Municipalities do not properly remit these amounts.

A certificate of conduct is a document certifying whether the person in question has a criminal record. Such certificate may be applied for at a local residents’ registration office against payment of a fee. The registration office forwards applications to the Federal Central Register kept by the Federal Office of Justice. The certificate of conduct is issued by the Federal Office of Justice. The registration offices must of their own accord remit three fifths of the collected fees to the Federal Government. This is due to the fact that, according to applicable legislation, the Federal Government is not authorised to collect fees from residents’ registration offices.

The Federal Office of Justice did not ensure full and timely receipt of the fees. The Office only verified payments by municipalities with at least 50,000 inhabitants. Thus, the Office did not consider 98 per cent of the municipalities with some 60 per cent of Germany’s total population. Once a year, the Office manually cross-checked the share of the fee amount to be paid by large municipalities against thousands of vouchers. These checks were cumbersome due to incomplete voucher information and demanding in terms of human resources. When checking payments received, the Office found that about half of the municipalities that were checked did not remit the fees to Federal Government as required.

If the Federal Government were authorised to collect the fees charged for issuing certificates of conduct directly from municipalities, the regularity of cash inflows could be monitored by federal cash offices.

The Federal Ministry of Justice and Consumer Protection set up a project group at the Federal Office of Justice that is to • explore new options for collecting fees, • identify new approaches to IT-based data matching and • explore options for improving accounting data supplied by municipalities.

The Federal Ministry of Justice and Consumer Protection did not report on any results achieved so far by the project group. We therefore requested the

Ministry again to ensure full and timely remittance of collected fees to the Federal Government.

Federal Ministry of Finance

19 Development of departmental budget 08

The Federal Finance Ministry drafts the federal budget and the medium financial plan every year. Furthermore, it decides on important individual cases of budget management and renders account for federal revenues and expenditures as well as federal assets and liabilities. It is responsible for the following tasks: • legislation and supervision in the areas tax and customs; • Federation’s financial relations with the German states and communities as well as the European Union; • regulation of financial markets; • successor bodies to the Trust Agency; • tasks in the area federal real estates; • Policy issues of privatisation and federal government shareholdings; • German reparations, especially restitution payments in favour of victims of National Socialist persecution.

In 2013, expenditures totalled €5 billion. This is equivalent to 1.6 per cent of the total federal expenditure budget. The Customs Administration only received €1.9 billion. Another major expenditure item was the German reparations amounting to €701.4 million.

Revenues totalled €357.3 million. Almost half of these revenues originated from the Federal Government’s stakes in successor bodies to the Trust Agency. Further 30 per cent were attributable to fees, fines and proceeds from sale earned by the Customs Administration.

Departmental budget 08

Federal Ministry of Finance

2013 2014 2015 actual target draft figures figures budget in € million Departmental expenditure 4,968.4 5,206.3 5,441.0 Departmental revenue 357.3 1,038.7 324.5 Commitment authorisations 155.0 353.0 427.3 (established) posts Staff 39,828 42,858 43,773

The Federal Ministry of Finance and its subordinate authorities discharge functions whose performace requires large human resources. About 70 per cent of the total expenditure under departmental budget 08 are tied up by material and personnel expenditure. Of the remaining funds, €1.4 billion are accounted for by grants and other payments mainly for reparation and to successor bodies of the Trust Agency. Capital expenditure is a minor item, which accounts for scarcely 3 per cent of total expenditure.

In the years 2014 and 2015, expenditure under this departmental budget will increase by more than €200 million compared to the respective preceding year. This is attributable especially to the following factors: • the transfer of responsibility for administering the motor vehicle tax to the Federal Customs Administration; • higher administrative costs of the Federal Employment Agency and the German Federal Pension Insurance which discharge functions on behalf of the Federal Central Tax Office; • the transfer of payroll-related functions formerly discharged within the remit of the Defence Ministry to the Customs Administration and the Federal Office for Central Services and Unresolved Property Issues; • higher IT expenditure on modernisations, upgrades and data security.

Moreover, a considerable increase of staffing needs in the Customs Administration has to be anticipated for the years to come in order to monitor compliance with the statutory minimum wage. The Ministry estimates the related staffing needs at 1,600 (established) posts.

Federal Ministry of Finance

20 Restructuring Fund (an-off budget federal entity) – bank levy is too low

The Restructuring Fund, which is financed through a bank levy, serves to realign or resolve banks that have come under financial distress. However, the revenue generated by the bank levy is too low to finance major stabilisation measures from the Fund. So far, the bank levy has not met the expectation with which it was introduced. Public funds would still be needed if major stabilisation measures became necessary. Thus, the objective that the banking sector itself will fund the support of banks in financial distress cannot be achieved.

In 2011, the legislature created the Restructuring Fund for Banks with a view to ensuring that the financial sector will, in the first place, meet the costs of the restructuring and resolution of banks in financial distress. Domestic banks make annual contributions to the Fund. The Federal Government expected that the related annual revenues would amount to €1.2 billion. Accordingly, it would take 50 years to accumulate the targeted capital stock of €70 billion. During the first three years (2011-2013) 1,832 banks contributed only €1.8 billion instead of the inspected €3.6 billion. One per cent of the banks contributed 87 per cent of the total revenue from the levy. Due to exceptional provisions and exempt amounts, many banks paid small contributions; 38 per cent of all banks did not pay any bank levy. We criticised that, if this revenue trend continued, it would take about 100 years to accumulate the targeted capital stock.

The EU Member States agreed to set up a Single Resolution Fund with a volume of €55 billion. This will replace the German Restructuring Fund. The

European Fund is to be accumulated in the period 2016-2024 from contributions of banks.

Based on the previous experience with the national bank levy, we recommended that the Federal Ministry of Finance press for ensuring that the European Single Resolution Fund receives sufficient revenues from banks’ contributions. Exceptions and exempt amounts should largely be avoided. The Federal Ministry of Finance is urged to exert adequate pressure.

Federal Ministry of Finance

21 Contaminated site management has been centralised

Following our recommendations, the Federal Ministry of Finance has centralised the management and eventual sale of contaminated sites. At the same time, the Ministry is continuing the required efforts towards the disposal of assets acquired in the course of disbanding the Treuhand (the trust agency selling off East German state assets).

The Federal Real Estate Agency is in charge of the management and disposal of numerous federal properties that are contaminated by toxic wastes and explosive ordinance. To perform this task, it has begun to set up a central contaminated site management function. The Finance Ministry had considered the option of conveying contaminated properties held by the Federal Real Estate Agency to a federally-owned company. That company intended to take over about 70 contaminated properties from the Agency. That company is one of the successor entities of the Treuhand and also sells contaminated properties.

We pointed out the risk of duplication of structures for the management and disposal of contaminate properties. This is not in the Federal Government’s interest. Therefore, we suggested that the Ministry arrange for bringing together

62 the two contaminated site portfolios in the Agency.

The Ministry followed our recommendation by assigning its shareholding in the company to the Agency. Those in charge of managing and selling contaminated properties can now pool their expertise and clean up and sell the contaminated properties more efficiently. At the same time, the Ministry has succeeded in further reducing the successor entities of the Treuhand.

Federal Ministry of Finance

22 Federal Ministry of Finance enhances drivers’ safety at work

The Federal Ministry of Finance has taken up our audit recommendation and improved workplace safety for drivers within its remit. To this end, it defined more precisely the requirements concerning medical examinations assessing the drivers’ fitness to drive. Furthermore, the Ministry instructed the units of the Federal Finance Office North to observe applicable provisions governing working hours and minimum rest periods and to record periods of availability and waiting. The aim is to reduce the risk of personal injuries and damage to property in traffic accidents for which the Federal Government could be held liable.

Provisions governing working hours and workplace safety of drivers in the public sector are laid down in a separate collective agreement. According to this agreement and in contrast to the German Working Hours Act, employer and employee may agree on longer working hours and shorter minimum rest periods if this is required to ensure a proper functioning of the carpool service. However, agreeing on longer working hours is only admissible if these include periods of availability and waiting. Also, the employer has to offer annual medical examinations.

We found that the Federal Finance Office North inadequately complied with

63 workplace safety requirements in several respects. For example, the Office was unable to prove the need for longer working hours in order to ensure the proper functioning of the carpool service. In addition, in case of longer working hours the Office failed to record whether employees had periods of availability and waiting. The employer did not regularly offer medical examinations assessing the drivers’ fitness to drive. Furthermore, the employer failed to take action if the drivers waived such examinations.

The Federal Ministry of Finance followed our recommendations. It requested the Federal Finance Office North to address the shortcomings found. Moreover, the Ministry pledged to inform all bodies within its remit that in case of a traffic accident caused by a driver’s poor health, drivers may be held liable for damage if they had waived medical examinations. This is to reduce the risk of personal injuries and damage to property in a traffic accident for which the Federal Government could be held liable.

Federal Ministry for Economic Affairs and Energy

23 Development of departmental budget 09

The Federal Economics Ministry has the lead responsibility for designing the entire economic policy of the Federal Government. This covers industry, commerce and trade, export promotion, technology and innovation policy, mining, market regulation and energy policy. The Ministry’s remit covers six agencies in the field of science and technology and in the fields of market regulation, trade promotion, external economic affairs and energy policy. In 2013, the Ministry spent €6.1 billion, equivalent to about 2 per cent of the total federal expenditure budget.

Departmental budget 09 Federal Ministry for Economic Affairs and Energy

2013 2014 2015 actual target draft budget figures figures in € million Departmental expenditure 6,074.6 7,418.0 7,125.0 Departmental revenue 727.6 627.1 459.9 Commitment authorisations 2,291.3 3,146.9 3,340.4 (established) posts Staff 7,598 7,951 7,900

• In 2013, the Federal Economics Ministry spent €5.1 billion on grants to foster activity in various branches of the economy. This amount aws equivalent to 83 per cent of total expenditures under departmental budget. In 2013, the grants database discloses grants towards 22,200 projects. In 2014, it has commissioned 28 project executing agencies to manage the grant programmes.

• At year-end 2013, an organisational decree of the Federal Chancellor assigned new tasks in the fields of energy efficiency and energy transition to the Ministry. Therefore, the funds appropriated under the energy and sustainability budget chapter increase by 1,295 million to 2,892 million in 2014.

• Revenues of €426 million had been budgeted; actual revenues totalled €728 million. The difference of €109 million results from grants awarded from the European Regional Development Fund, which the Federal Economics Ministry passed on to the German states.

• In the 2014-2018 period, expenditures under departmental budget 09 are to decline by €482 million, equivalent to a reduction of 6.5 per cent. Savings during this period will be generated above all because the energy-efficient building refurbishment is no longer funded under departmental budget 09 but by the energy and climate fund. Furthermore, grants towards hard-coal mining and towards the construction of a light rail rapid transit system in Vietnam will be cut. Disarmament projects in the Russian Federation will expire. Additional funds have, in particular, been earmarked for the German

Aerospace Centre.

Federal Ministry for Economic Affairs and Energy

24 Grants under the “go-effizient” support module currently inefficient

The Federal Ministry for Economic Affairs and Energy awarded non-repayable grants for external consulting services in enterprises under the “go-effizient” support module. The potential cost advantages to be achieved by the enterprises exceeded the consulting fee in almost all cases. The Federal Government could save €2.8 million annually if the Ministry awarded repayable grants.

The Federal Ministry for Economic Affairs and Energy supports enterprises in developing product and process innovations. Under the “go-effizient” module, the Ministry funds a proportion of the cost of external consulting services, especially in small and medium-sized enterprises. As a result, enterprises should achieve considerable savings in (raw) materials. They have to pay the proportion of the consulting fee that is not funded by the Ministry. The Ministry grants non-repayable funds. Budgetary regulations stipulate that repayable grants should have preference.

In 91 per cent of the audited 94 grant cases, the value of the annual potential (raw) material savings exceeded the consulting fee. Furthermore, consultants and enterprises identified additional cost advantages in 59 per cent of the grant cases. Thus, almost all enterprises receiving consultancy services could have generated the consulting fee within one year through annual potential savings.

We criticised the non-repayable grants as unnecessary and inefficient and demanded that future support should be given in the form of repayable grants. The fund allocation procedure under the “go-effizient” module allows a decision

66 based on successful consulting. For justified exceptional cases, the Ministry could waive the repayment of the grants.

Federal Ministry for Economic Affairs and Energy

25 Improved supervision of the Federal Institute for Materials Research and Testing

The Federal Ministry for Economic Affairs and Energy and the Federal Institute for Materials Research and Testing pledge to determine measurable targets in their target agreements in future. They intend to regularly review target achievement. Thus, the Ministry wants to improve its supervision of the Federal Institute for Materials Research and Testing. The Federal Institute pledges to better document the procedures for undertaking the tasks review and substantiating staffing needs, and to present the results. Furthermore, it intends to fix its fees and charges so as to ensure full cost recovery. The Federal Ministry for Economic Affairs and Energy and the Federal Institute for Materials Research and Testing concurred with our recommendations.

In 2013, we reviewed the financial management of the Federal Institute for Materials Research and Testing by examining the target agreements between the Federal Ministry for Economic Affairs and Energy and the Federal Institute, the tasks review in the Federal Institute and its fees and charges. The following was criticised: • The target agreements were only partly suitable for an appropriate supervision by the Ministry. It has to clearly define the targets for mission performance to ensure target-oriented control of the Federal Institute. The Ministry has to determine measurable indicators and to periodically assess and document target achievement. • Its insufficient description of tasks resulted in the inability to demonstrate which tasks were carried out to fulfill legal obligations or contracts and which it performs on a voluntary basis. However, it needs a comprehensive

catalogue of tasks and a task review analysis in order to efficiently organise its internal procedures and to appropriately substantiate its staffing needs. • The fees and charges imposed by the Federal Institute do not cover the resulting costs. The Federal Institute has to fix its hourly rates so as to fully cover all performance-related costs.

The Ministry and the Institute pledged that they would implement the recommendations. They will in future define measurable targets and indicators for measuring target achievement and will assess them periodically. The Institute intends to systematically document its catalogue of tasks and the resulting tasks review. Furthermore, it pledges to better demonstrate how it substantiates its staffing needs, and to review and adjust its fees and charges so as to ensure full cost recovery.

We will monitor how the Ministry implements its pledges.

Federal Ministry for Economic Affairs and Energy

26 Ministry for Economic Affairs eliminates deficiencies in the audit of documents proving the use of funds

Following our recommendation, the Federal Ministry for Economic Affairs and Energy has enhanced the review of documents proving the use of funds within its remit. It gave the responsible bodies instructions on how to properly audit documents proving the use of funds, and it intends to improve the documentation of audit findings and conclusions by means of standardised formats. More field audits are expected to contribute to an earlier identification of beneficiaries’ infringements. Furthermore, the Ministry prompted a speedy reduction of backlog cases in the audit of documents proving the use of funds.

Financially supporting projects is the Ministry’s largest area of responsibility. Thus, properly auditing documents proving the use of funds is of particular importance. The Ministry does not only have to account for and explain whether the funded projects have been implemented as proposed but it also has to identify undesirable developments in due time and draw conclusions for future grant decisions. The Ministry regularly commissions the Federal Office for Economic Affairs and Export Control and other project management organisations to audit documents proving the use of funds.

The Ministry and the project management organisations did not check whether the funds were used in line with budgetary regulations. Thus, cursory reviews of the project management organisations sometimes did not take place or were not properly documented. In some support areas, fieldwork on the beneficiaries’ premises was not at all or only rarely conducted. The Ministry did not specify a standard format for the required memo on the verification of proofs of the use of funds. Contrary to its promises made in 2011, it did not reduce the backlog of cases in the audit of documents proving the use of funds.

The Ministry concurred with our recommendations. It has taken steps to improve the audit of documents proving the use of funds. Thus, the obligations

69 in the cursory examination of documents proving the use of funds were pointed out in writing particularly to the Ministry’s relevant divisions, the Federal Office for Economic Affairs and Export Control and the project management organisations. The Ministry promised to take up our suggestions on in-depth audits by initiating further steps. E.g. it revised the specifications on the contracts with the project management organisations. Moreover, it prescribed a number of field audits and standard formats for memos on the audit of documents proving the use of funds.

We consider the Ministry’s actions appropriate for ensuring a proper and efficient audit of documents proving the use of funds. We will monitor whether the individual actions have the expected effects.

Federal Ministry for Economic Affairs and Energy

27 Improved evaluation of grant-funding programmes

The Federal Ministry for Economic Affairs and Energy intends to incrementally improve the evaluation of its support programmes. The objectives are to sustainably enhance the quality of programme evaluation and to promote consistently high standards. For this purpose, an existing central unit will assist divisions with programme evaluation. Furthermore, the Ministry intends to use a computerised financial assistance controlling system. It promised to define the objectives of the support programmes more specifically in future and to carry out all components of programme evaluation. This approach is in line with our recommendations.

Budgetary regulations require that the Federal Ministry for Economic Affairs and Energy monitors the success of its support programmes systematically, e.g. for the Central Innovation Programme for SMEs. To do so, it has to define objectives, criteria and procedures, and, subsequently, to carry out the programme evaluation comprising the evaluation of effectiveness, outcomes

70 and efficiency. In its support programmes, the Ministry described general objectives. There was no information on the time provided to achieve the intended objectives. The same applies for initial and target values. Programme evaluations varied considerably in their methodology and depth. The federal government department often could not demonstrate the effectiveness of a support programme.

We demanded that the support programmes’ objectives be defined in such a way as to allow programme evaluation. Furthermore, the Ministry should carry out all components of programme evaluation, applying appropriate methods. In order to support this, we suggested to pool methodological expertise concerning programme evaluation. The Ministry should formulate minimum requirements and ensure compliance with them.

The Ministry promised to improve the quality of its programme evaluations and to promote consistently high standards by using a computerised financial assistance controlling system in line with budgetary regulations. Furthermore, it founded an “evaluation quality circle” to broaden and deepen the knowledge of evaluation methods and procedures within the Ministry. According to the Ministry, its newly introduced financial assistance controlling report now provides a formate for informing the management about large individual projects. Moreover, the Ministry intends to hire, subject to parliamentary approval, additional staff for the central financial assistance controlling system.

We hold that the steps initiated are appropriate for improving the evaluation of support programmes in the Federal Ministry for Economic Affairs and Energy. We intend to follow up on whether and how the Ministry complies with its promises.

Federal Ministry of Food and Agriculture

28 Development of departmental budget 10

The Federal Ministry of Food and Agriculture exercises the functions of the federal government in the fields of nutrition, food and product safety, agriculture and forestry and health protection of consumers. In FY 2013, it spent €5.2 billion on these purposes. This amount accounted for 1.7 per cent of the total federal expenditure budget. Compared to the 2013 figure, expenditures in FY 2014 are to increase slightly.

Departmental budget 10 Federal Ministry of Food and Agriculture

2013 2014 2015 actual target draft budget figures figures in € million Departmental expenditure 5,218.5 5,310.5 5,319.0 Departmental revenue 77.4 120.5 85.1 Commitment authorisations 611.5 1,711.9 1,063.3 (established) posts Staff 3,912 4,024 4,086

• An organisational decree issued by the Federal Chancellor on 17 December 2013 redefined the Ministry’s remit. Responsibility for consumer policy was transferred to the Federal Ministry of Justice and Consumer Protection, while the Food and Agriculture Ministry retains the responsibility for consumer protection in food safety and quality matters. One of the results of this shift of responsibilities is that, in the 2014 budget, appropriated funds of about €30 million are transferred from the Food and Agriculture departmental budget to the Justice and Consumer Protection departmental budget. However, this does not reduce expenditure under the Food and Agriculture Ministry’s departmental budget because, at the same time, appropriations for agricultural social security policy, sustainability, research and innovation are increased.

• The major portion of the expenditures of departmental budget 10 went into social security policy for the agricultural sector. In FY 2013, federal spending on the old age pensions, health insurance and accident insurance schemes for farmers totaled €3.7 billion. • Effective from 1 January 2013, the responsibility for agricultural social insurance has been assigned to the newly formed social insurance body for agriculture, forestry and horticulture, which is an amalgamation of the former regional bodies for farmers‘ social insurance. The purpose of the amalgamation into a nationwide body was to achieve savings in administrative and procedural costs. We monitored the restructuring process right from the start. We will continue to check whether the new nationwide body is disbanding decentralised structures and reassessing staffing needs so as to reduce administrative expenditure. • Another major expenditure item in departmental budget 10 is €575 million spent on the Joint Task for the Improvement of Agricultural Structures and Coastal Protection in 2013. The coalition agreement of 16 December 2013 between the parties that form the present Federal Government provides for the transformation of this Joint Task into a Joint Task for Rural Development in the current legislative period. The details have not yet been determined. We shall monitor the transformation process. • The federal government department spent €477 million on the promotion of “Sustainability, Research and Innovation” in 2013. The volume of expenditure has increased by 40 per cent since 2009. • Consumer policy has been the stated focus of the activities of the federal government department. In 2013, expenditures on consumer policy and on the Federal Office of Consumer Protection and Food Safety amounted to €137.1 million, equivalent, however, to only 2.6 per cent of total expenditures under departmental budget 10.

Federal Ministry of Labour and Social Affairs

29 Development of departmental budget 11

The remit of the Federal Ministry of Labour and Social Affairs comprises key Federal Government functions of social security and employment. The tasks relating to statutory pension insurance, statutory accident insurance and to the promotion of employment are largely performed by bodies incorporated under federal or state law, especially by the German Federal Pension Insurance and the Federal Employment Agency. As a matter of principle, they are financed from contributions. However, the Federal Government takes up a considerable portion of the related expenditure, which is strongly dependent on external factors: the impact of the economic cycle on the labour market, the demographic trend in Germany and the duration of working life.

In terms of its volume, departmental budget 11 is the by far biggest departmental budget within the overall federal budget. Its expenditures in FY 2013 totalled €119.7 billion, which is equivalent to 38.8 per cent of the total federal expenditure budget.

Departmental budget 11 Federal Ministry of Labour and Social Affairs

2013 2014 2015 actual target Draft budget figures figures in € million Departmental expenditure 119,715.9 121,979.3 124,841.5 Departmental revenue 2,610.5 1,863.3 1,899.5 Commitment authorisations 1,566.2 2,490.8 2,412.2 (established) posts Staff 2,220 2,427 2,421

• In 2013, the Federal Government paid a total amount of €81.1 billion towards statutory pension insurance. Thus, the Federal Government funded nearly one third of the expenditure on statutory pension insurance. Two

federal bodies and 14 regional bodies perform the tasks of statutory pension insurance under their own responsibility. A reorganisation launched in 2005 was to streamline pension insurance and make it more effective. We repeatedly recommended that the pension insurance bodies improve their coordination in matters of corporate policy and cross-cutting issues. • In the years 2011 and 2012, we checked whether the pension insurance bodies duly claimed the refund of excess pension payments. We found that not all pension insurance bodies did so consistently and without delay. At present, we are discussing ways in which the Federal Ministry of Labour and Social Affairs and the pension insurance bodies can transparently record their outstanding claims and act consistently in demanding refunds. • Employment promotion is the responsibility of the Federal Employment Agency. The Ancillary Budget Act 2013 has abolished, effective from 2013, the federal contribution towards the costs of employment promotion. The Federal Government expects the financial situation of the Agency to remain stable in the coming years. In the field of employment promotion, our audit focuses on the Agency’s specific functions. In response to our recommendation, the Agency intends to enhance its control system. • For years, the Federal Government has incurred large expenditures on the basic security scheme for job seekers. In 2013, such expenditures totalled about €32.2 billion. As external auditors of the Federal Government, we are the only public institution that has a full mandate to do fieldwork at all job centres. In addition to reviewing the organisation of the units responsible for administering the basic security scheme for job seekers and the reimbursement of costs by the Federal Government, our audit focused on the integration of job seekers in the labour market and the use of employment promotion tools and the correct granting of pecuniary benefits such as unemployment benefit II. Key recommendations on how to enhance programme management were incorporated into legislation and regulations. For instance, implementation of our suggestions achieved a considerable reduction of the administrative burden connected with the health and long- term care insurance for recipients of unemployment benefit II.

Federal Ministry of Labour and Social Affairs

30 The umbrella organisation of the statutory accident insurance funds must comply with the same provisions of social law as must all its member entities

The umbrella organisation of the statutory health insurance funds has been incorporated as a registered association. This form of organisation must not lead to its circumventing the provisions of social law that are binding on all social bodies. We demanded that the umbrella association of the statutory accident insurance funds introduce provisions in its articles of association that bind the Association to compliance with the provisions of social law applicable to budget management and accounting.

The German Association of Statutory Health Insurance Funds is the umbrella organisation of the private and public sector statutory health insurance funds. It fulfils the functions conferred upon it by law; e.g. it makes contracts about medical fees with the Association of Statutory Health Insurance Physicians. Furthermore, it discharges functions on behalf of its member entities, all of which are statutory health insurance funds whose mission performance is govern by Book IV of the German Social Code. In contrast, the umbrella association has been incorporated as a registered association not directly bound by Book IV of the Code and its provisions on budget management and accounting.

We audited the Association financial management in such fields as initial, further and continued training. We found that the Association did not apply the provisions on budget management and accounting laid down in the said Book IV of account. For instance, it does not have a comprehensive cost and performance accounting system in place. Moreover, when deciding about its Berlin headquarters, the Association had not complied with the provisions on budget management and accounting that apply to its member entities. Later, it took decisions that resulted in not realising savings potentials.

In our opinion it is absolutely necessary for the Association to bind itself to compliance with the provisions on budget management and accounting laid down in Book IV of the said Code. Being an Association exclusively composed of bodies incorporated under public law, it acts on behalf of its member entities. If the provisions on budget management and accounting laid down in Book IV of the Social Code were not applicable to the Association, this would enable its member entities to circumvent the said provisions that are binding for them.

If the Association continues to refuse a change in its articles of association, we suggest that legal provisions be enacted to oblige the Association to comply with the provisions on budget management and accounting laid down in Book IV of the Social Code.

Federal Ministry of Labour and Social Affairs

31 Health weeks – pension scheme services offered without legal authority

Without legal authority, the German Pension Scheme for Miners, Railway Workers and the Seamen offered health weeks to everyone in its hospitals against payment. The Federal Ministry of Labour and Social Affairs has to ensure that social insurance bodies engage in commercial activities only to the extent permitted by applicable law.

In their hospitals, statutory pension schemes provide medical rehabilitation services to insured disabled people or to those at risk of disability. In addition, they may offer preventive medical services to preserve workers’ ability to work where their jobs are particularly hazardous to health. Their pension insurance bodies fund the provision of these services which they are obliged to provide by law from the contributions of insured persons and a grant from the Federal Budget.

In its hospitals, the above mentioned pension insurance body offered health weeks to everyone at a price between €380 and €850. However, this engagement in commercial activities is not permitted by law. Health week services are almost exclusively booked by enrollees who are legally entitled to such preventive medical services. Insured persons shall not be urged to pay for these services out of their own pockets. Such services shall not be offered to other persons.

The Federal Ministry of Labour and Social Affairs must ensure that engagements in commercial activities do not exceed admissible limits.

Federal Ministry of Labour and Social Affairs

32 No additional office space for accommodating IT equipment

Following a recommendation of the German SAI, the German Federal Insurance Office modified the office space standards applicable to social insurance bodies. By modifying these standards, the Office gave up the outdated practice of granting additional office space to accommodate IT equipment. This is to prevent social insurance bodies from building and maintaining office premises that are larger than, for example, those of federal government agencies.

Social insurance bodies are required to spend budgetary funds in an efficient and economical manner. If they purchase real estate or construct/convert buildings at costs exceeding certain thresholds they are required to seek the relevant oversight body’s permission. In cooperation with regional oversight bodies, the German Federal Insurance Office developed a guide issued in 1985 which laid down applicable standards. In particular, this guide encompasses details on office space requirements.

The German SAI audited the office space required by a social insurance bodies that intended to build a new office block. We found that the required space

79 exceeded by more than one third the space stipulated by the office space standards for federal government departments. The social insurance bodies based its calculation on the guide. According to the guide, IT workplaces were to be provided with additional space. The office space standards of federal government departments do not provide for such a rule.

The German SAI alerted the German Federal Insurance Office to this outdated practice. Additional space for IT workplaces is today no longer required.

Following the German SAI’s recommendation, the German Federal Insurance Office deleted the relevant passage in the guide that “needed revision anyway”. This step will prevent social insurance bodies from building and maintaining office premises exceeding those of federal government departments.

Federal Employment Agency

33 Doubts about the efficiency of the Federal Employment Agency’s University of Applied Labour Studies

The German SAI requested the Federal Employment Agency to increase its University’s efficiency. The German SAI expects the Agency to conduct an adequate efficiency appraisal on the operation of its University at two different locations and, on this basis, to decide whether to maintain the two locations.

The Federal Employment Agency runs a University in Mannheim with a branch in Schwerin. Offering two bachelor programmes in labour market management and in employment-oriented guidance and case management, the University’s mission is to train part of the junior staff of the Agency.

In addition to junior staff training, the University plans to offer a master programme.

The University also performs research tasks. These are mainly carried out by the Institute for Employment Research, the Federal Employment Agency‘s research institute.

The German SAI found that the University’s organisation was inflated and its premises were too large. Operating two sites was a costly exercise. Compared to other universities maintained by the German states, the costs per student were therefore more than twice as high. Studies or justifications underpinning the need to introduce a master programme did not exist. Moreover, the Federal Employment Agency regularly failed to coordinate research between the University and the Institute for Employment Research.

The Federal Employment Agency only partly followed the German SAI’s recommendations. The Agency pledged to analyse and to streamline the University’s organisation. Furthermore, the Agency developed a strategy for introducing post-graduate studies. This strategy was used to show that the introduction of a master programme was necessary and essential to the Agency’s human resource development. In addition to that, the Federal Employment Agency pledged to better coordinate research between the University and the Institute for Employment Research.

The Federal Employment Agency performed a cost-benefit-analysis on the operation of the two sites. This analysis showed that running the University at only one site would reduce costs. However, the Agency intends to maintain both sites as it sees qualitative benefits in this arrangement, arguing that two sites were attractive for students coming from all German regions.

The German SAI is of the opinion that the University is not yet operating efficiently. The Federal Employment Agency is required to prove the need for operating the University at two sites. The German SAI requests the Agency to take the required steps.

Federal Employment Agency

34 Federal Employment Agency enhances staff planning for job centre consultants

The Federal Employment Agency implemented the German SAI’s recommendations on staff planning for job centre support teams. The Agency has pledged to employ staff only to the extent needed to efficiently carry out its mission.

Job centres provide basic benefits for job-seekers pursuant to Book II of the German Social Code (so-called Hartz IV benefits). These centres are operated by municipalities on their own or jointly by the Federal Employment Agency and a number of municipalities.

The Federal Employment Agency offers internal consultation services to jointly operated job centres. The aim is to assist these centres in enhancing their business processes and in fulfilling the Federal Employment Agency‘s requirements. The internal consultation service team operates from four regional offices.

We found that the Federal Employment Agency failed to assess the support team‘s staffing requirements. Moreover, the Agency did not ensure that staff was assigned according to demand.

The Federal Employment Agency largely implemented our recommendations to enhance staff planning. In future, consultation teams can be set up flexibly and across all offices. The Federal Employment Agency has pledged to assess staff requirements particularly on the basis of the expected demand for such services.

Federal Employment Agency

35 The Federal Employment Agency pledges to ensure that, as required by law, third parties contribute to supporting career guidance programmes

The Federal Employment Agency pledges to ensure that third parties will contribute to supporting career guidance programmes and that such contribution will – as stipulated by law – amount to at least 50 per cent. Moreover, the contribution must be in money. This is to comply with the German SAI’s recommendations.

To facilitate the transition from school to working life, employment agencies may offer career guidance programmes to pupils. However, the prerequisite for this is that third parties, such as the German federal states, guilds and business enterprises, contribute to supporting such measures and that such contribution amounts to at least 50 per cent. Contributions by third parties should preferably be in cash.

We found that the agencies supported career guidance programmes even if the co-financing rate did not reach 50 per cent. The contribution made by third parties often only represented a very small proportion of total costs. In one case, an agency bore almost all costs (€156,000 of €157,000).

Furthermore, the agencies frequently did not observe the rule that a contribution should generally be in money. In fact, they also accepted the provision of staff and other non-cash contributions.

The German SAI recommended that the Federal Employment Agency observe the rule laid down in law that at least 50 per cent of total costs have to be covered by third party contribution. The Agency should ensure that third party contributions are made in money.

The Agency followed or of our recommendations. This allows the Agency to reduce its share in total costs.

Federal Ministry of Transport and Digital Infrastructure

36 Development of departmental budget 12

After the change of government in late 2013, the then Federal Ministry of Transport, Building and Urban Development lost the latter two remits and was renamed Federal Ministry of Transport and Digital Infrastructure. It retains the responsibility for ensuring, planning and promoting the development of transport infrastructure and operations in Germany. The federal government department is responsible for the construction, upgrading and maintenance of roads, railways and waterways, inland and sea shipping and civil aviation. An additional responsibility is that for digital infrastructure, especially for the telecommunications industry and for promoting broadband. In FY 2013, expenditures under departmental budget 12 totalled more than €26 billion, equivalent to 8.4 per cent of the total federal expenditure budget. More than one half of the expenditures under this departmental budget were capital expenditures, which went primarily into the construction of roads and railway lines. The federal government department obtained most of its revenue (€4.4 billion out of €6.2 billion) from the toll system for heavy vehicles.

Departmental budget 12 Federal Ministry of Transport and Digital Infrastructure

2013 2014 2015 actual target draft budget figures figures

in € million Departmental expenditure 25,968.5 22,861.9 23,131.8 Departmental revenue 6,186.8 5,192.4 5,802.9

Commitment authorisations 10,654.6 25,231.4 11,189.0 (established) posts Staff 21,835 22,387 22,319

• In 2013, the Federal Government spent €10.1 billion on the railways. A distinction needs to be made between the federal expenditures of €5.7 billion on the Federal Railways Fund and the expenditures of €4.4 billion on Track construction, upgrading and maintenance. As to upgrading, the Federal Government gives its railway infrastructure companies project-linked grants towards construction costs. The companies have to give detailed proof that they used these funds efficiently and in line with the specified purposes. Since 2009, the Federal Government has paid annual lump-sums of €2.5 billion for maintenance of the Track. In 2013, the companies were allowed to spend further federal funds of €250 million on this purpose without having to perform more work in return. For 2015, the work to be done by the companies in consideration of this grant has not been adequately specified and can therefore hardly be verified.

• In 2013, the Federal Government funded the construction, maintenance and operation of federal long-distance roads with €6.6 billion. Given the condition many roads are in, their maintenance should always be given precedence. In 2014, the funds appropriated for this purpose have increased slightly to €2.6 billion, although the total amount of appropriations for capital expenditure has been slightly reduced to €4.4 billion. Since 2009, the Federal Government has already spent more on the operation of federal long- distance roads, e.g. on inspection, general maintenance and winter maintenance, than appropriated in the federal budget. The reasons for this given by the federal government department included pay rises and increased material and transport costs. Nevertheless, it did not increase the expenditure estimates and instead used tools of flexible financial management. In our opinion, this ultimately contravenes the requirements of reliability and transparency of the budget.

• The Federal Government is also responsible for the construction, upgrading and maintenance of federal waterways. In 2013, it spent €1.8 billion for this purpose. Administrative tasks in connection with the federal waterways are performed by a network of federal administrative offices, the Waterways and Shipping Administration, whose workforce is about 12,000. Since 2011, the Ministry has reviewed this Administration to restructure it. As of 1 May 2013,

it merged the previous seven waterways and shipping directorates into the Waterways and Shipping Directorate-General with seven branch offices. In the current electoral term, the restructuring process should be continued. We expect tangible progress and will contiue to monitor further developments.

Given the redefinition of the department’s remit, it remains to be seen especially how it performs its new major task in the field of digital infrastructure. The organisational units to which this task is to be assigned is still in the process of being established. Up to now, the ratio between the structures created and the available resources does not appear to be balanced.

Federal Ministry of Transport and Digital Infrastructure

37 Savings potential of more than €35 million not used

For the construction of a new railway line leading through Thuringia and Bavaria, the Federal Transport Ministry has funded different track spacings and structural dimensions. It failed to require the railway infrastructure company to apply the technical regulations equally in both German states. Thus, the Ministry has failed to use a savings potential of more than €35 million.

The new railway line between Nuremberg and Erfurt leads through Thuringia and Bavaria. Since 1995, in their capacity as plan approval authorities, the relevant field offices of the Federal Railway Administration issued successive plan approvals for the sections of the new railway line. As grant-awarding agency, the Federal Railway Administration has given the railway infrastructure company grants in the total amount of €1.8 billion. The Federal Railway Administration comes under the technical supervision of the Federal Transport Ministry. Moreover, the Ministry is involved in the planning of the project by the company and coordinates planning with the Federal Railway Administration. In 1997, the company changed its internal technical regulation for the new construction of railway lines. Since then, smaller track spacings may be planned

86 and built. This also permits more cost-effective structural dimensions.

For the Thuringian section of the railway line the company adapted its spacing to the smaller structural dimensions. The responsible field office of the Federal Railway Administration approved this change in 1998. Our auditors found that the company did not change its planning for the Bavarian section of the railway line. It planned and built the larger structural dimensions in Bavaria. The Federal Railway Administration stated that it had been concerned about risks to the legal validity of the plan approvals due to objections raised by third parties.

We criticised that the Ministry has failed to use a savings potential of at least €35 million. It permitted that different track spacings and cross-sections of bridges and tunnels were built and funded for a new railway line through two German states. To avoid this, the Ministry should have become effectively involved in the company’s planning and should have appropriately exercised its technical supervision of the Federal Railway Administration. The latter would have had to clarify why its field offices approved different structural dimensions for the construction of a new railway line.

The Ministry commented that it was exercising its technical supervision by continuous coordination during planning. The Ministry considers this as sufficient. It invoked the independence of the Federal Railway Administration as plan approval authority. Changing the plan approvals in Bavaria would have involved incalculable risks.

We uphold our opinion that the Ministry could have saved at least €35 million. We hold that there is no sufficient proof for the risks in Bavaria about which concern has been expressed. We recommend that the Ministry requires the companies to analyse how changes of technical regulations affect infrastructure projects. We expect that the Ministry will in future arrange for cost-effective planning and building of future infrastructure projects and will consequently use any savings potentials.

Federal Ministry of Transport and Digital Infrastructure

38 The Federal Transport Ministry approved funding of €54 million for novel signal technology without the required operating schedule

The Ministry did not concurrently monitor and control the new construction of a railway line to the required extent. The technical and operational requirements have changed several times since the planning was started. The Ministry approved federal funding of the novel Europe-wide standardised signal technology without taking due regard to these changes. For purposes of the programme results evaluation required under budgetary law, it would have had to lay down technical and operational requirements for the equipment of the railway line with signal technology.

For the construction of the new railway line from Nuremberg to Erfurt, the Federal Transport Ministry awarded grants of €1.8 billion since planning had started. Since then, the legal framework changed several times. In 2009, the Federal Republic of Germany had entered into an obligation to use a novel Europe-wide standardised signal technology. In 2012, the Ministry awarded grants of €54 million for the equipment of the said railway line with signal technology. However, it did not state any line capacity requirement the planned signal technology would have to meet. We found that the funding applications of the railway infrastructure company lacked information on the operation schedule, i. e. the planned daily number of trains, their speeds and the distribution of train services to the night and day hours.

We have criticised that the Ministry monitored and steered this infrastructure project inadequately. Before approving federal funding for the signal technology, the Ministry would have had to establish the current operating schedule.

The Ministry argued that, when approving the signal technology, it was able to waive an operating schedule and the proof of line capacity. It went on to say that these had already been examined when federal funds for other construction services were granted.

We expect the Ministry to exert its influence to achieve the highest possible line capacity with the novel signal technology in spite of the changed regulatory framework. In our opinion, concurrent project monitoring and control by the Ministry continues to be necessary for the rest of the construction period. The Ministry must obtain current information about the operating schedule and impose appropriate requirements for the planning and construction of the signal technology. Without such information and requirements, the Ministry moreover lacks the basis for a programme results evaluation.

Federal Ministry of Transport and Digital Infrastructure

39 Revise grant funding of freight transport industry

Programmes funded from toll revenues with a view to promoting environmental friendliness, security and qualification in the freight transport industry have triggered considerable deadweight effects. The Ministry did not sufficiently align the programmes with the objectives of grant funding.

The Federal Transport Ministry supports freight transport enterprises by means of several programmes. These include a programme for the promotion of security and environmental friendliness (known as De-minimis programme) and a programme for promoting initial and continued training, qualification and employment (training programme). In the years 2009-2012, the Ministries spent €919 million on these programmes.

We criticised that, with the programmes, the Ministry has funded many measures which would have been implemented anyway. For instance, it funded legally prescribed accessories for trucks (lorries), e.g. devices for securing the load and for lighting. Via the training programme, it gave grants towards training which truck drivers are obliged to undergo according to the Professional Drivers‘ Qualification Act. Other grants were necessary to ensure the continued operation of the enterprises. On balance, a large part of the grants have not created an incentive for achieving their statutory objectives. This is inadmissible

90 under budgetary law. The Federal Government may only give grants towards measures which otherwise would not be carried out at all or not to the necessary extent.

We asked the Ministry to revise the programmes and to ensure regular and effective grant funding of the freight transport industry. It must exclude all measures which would be carried out anyway without federal grants.

Federal Ministry of Transport and Digital Infrastructure

40 Federal Government may save €10 million by not having a tunnel built

The road construction administrations of the States of Brandenburg and Berlin are planning a tunnel for mostly urbanistic reasons. The protection of local residents can be achieved without building a tunnel. The Federal Government may save €10 million by not having the tunnel built.

The tunnel is to be 150 metres long and is to be part of the planned Ahrensfelde bypass of federal road B 158. In the tunnel area, the route is to run closely past multi-storey residential houses. In the first planning stage, the Brandenburg road construction administration studied several options but discarded the tunnel option for financial and other reasons. However, the road construction administration eventually continued to plan for the tunnel option. The Federal Transport Ministry approved this plan. The tunnel is to reduce the partition of the neighbourhood which could result from the erection of noise abatement walls. However, the tunnel is not to be level with the adjacent ground but to stick out up to four metres. The road construction administration forecast that the proportion of trucks in the total traffic load would be 7 per cent in 2025. However, it calculated the noise abatement need on the basis of a standard proportion of 20 per cent laid down in relevant guidance. We objected to this. In response, the Federal Transport Ministry asked the road construction administration to recalculate the noise abatement need. Apart from that, the

Ministry stated that the planned tunnel would vitiate the neighbourhood less than other solutions and therefore was advantageous.

We consider a ground-level option with noise abatement walls as sufficient. It would meet the legal requirements for noise abatement. After recalculation of the noise abatement need, the administration can reduce the vitiation of the residential neighbourhood concerned by using transparent noise abatement walls. The Federal Government may thus save €8 million in construction costs and another €2 million in maintenance costs.

Federal Ministry of Transport and Digital Infrastructure

41 Federal Government successfully claims refund of €921,000

Following our advice, the Federal Railway Administration claimed the refund of €921,000. A railway infrastructure company had charged planning costs both as construction costs and as flat rate remuneration.

The Federal Government reimburses the railway infrastructure companies the expenditure on eligible construction costs. Necessary planning costs are remunerated by a surcharge calculated as a percentage of the construction costs. This so-called planning-cost flat rate also covers the cost of renting equipment for testing and inspection. We audited the accounts of the building costs for the Chemnitz rail node. We found that the company had invoiced rental costs of €815,000 as construction costs. It had thus also received an excessive planning-cost flat rate.

We criticised that the Federal Government had both recognised the rental costs as building costs and remunerated them via the planning-cost flat rate. We asked the Federal Railway Administration to claim the refund of the federal grants wrongly received by the company.

The Federal Railway Administration confirmed our findings and claimed the

92 refund of €921,000 from the company. This refund claim was one of the reasons that prompted the Federal Railway Administration to conduct an overall review of the companies‘ invoicing practices of recent years.

We hold that a continued comprehensive review of the companies‘ invoicing practices will be necessary.

Federal Ministry of Transport and Digital Infrastructure

42 Unnecessary adaptive traffic control system built on motorway A 14: State of Saxony-Anhalt refunds €700,000 to the Government

The State of Saxony-Anhalt had an unnecessary system for temporary hard shoulder running on federal motorway A 14 built at the expense of and without the consent of the Federal Government. Construction costs totalled €700,000. We successfully demanded that the State of Saxony-Anhalt refund this amount to the Federal Government.

In order to increase the traffic capacity of Federal Motorway A 14, the road construction administration of the State of Saxony-Anhalt planned a system for temporary hard shoulder running between the Schönebeck and Magdeburg- Reform junctions. The Federal Transport Ministry considered this system as unnecessary. Therefore, it did not approve the preliminary plan of the road construction administration and prohibited that the State’s transport ministry further pursue the planning and construction of the system.

Nevertheless, the State’s transport ministry ordered its road construction administration to have the system for temporary hard shoulder running built. The road construction administration financed the costs of €700,000 from federal funds. The Federal Transport Ministry was not informed of the construction of the system.

We asked the Federal Transport Ministry to recover the federal funds of €700,000 unduly used by the State. Meanwhile, the State of Saxony-Anhalt has refunded this amount to the Federal Government.

Federal Ministry of Transport and Digital Infrastructure

43 Optimised planning of a bypass generates savings of up to €1.4 million

The Federal Transport Ministry demanded that the road construction administration of the Free State of Bavaria change its plan for the construction of the Dinkelsbühl bypass. By renouncing the bridge and reducing the size of the planned wildlife overpass, the Federal Government will save up to €1.4 million. The Federal Transport Ministry has thus followed our recommendations.

The Federal Government commissioned the road construction administration of the Free State of Bavaria to plan the new construction of the Dinkelsbühl bypass. Seven bridges were planned for this section of federal road B 25 which was 3.4 km long. One bridge was to reroute an existing road via the new bypass. In addition, a wildlife overpass was to enable bats to cross the new bypass without danger. The road construction administration did not consider more cost-effective alternative options.

We pointed out options for reducing the costs of the construction of the new bypass. Apart from an at-grade intersection as an alternative to the bridge, one option was to downsize the wildlife overpass. These measures can enhance cost-effectiveness and permit compliance with environmental standards.

The Federal Transport Ministry followed our recommendation. It promised to have the road construction administration revise the plan for the bypass. This will generate savings of up to €1.4 million for the Federal Government.

Federal Ministry of Transport and Digital Infrastructure

44 Uniform retention of accounting records pertaining to the construction of federal long-distance roads

The road construction administrations of the German States build and manage federal long-distance roads on behalf of the Federal Government. So far, the retention of the pertaining accounting records is governed by the respective regulations of each state. Following our recommendation, the Federal Finance Ministry has addressed this issue. In future, the Federal Transport Ministry will make sure that the states will uniformly apply the provisions of the Federal Budget Code on the retention of documents. This is to increase legal certainty and to avoid extra administrative burdens for the road construction administrations.

The road construction administrations of the German States build and manage federal long-distance roads on behalf of the Federal Government. To do so, they manage federal funds and are required to retain the pertaining accounting records. Different regulations apply to such retention.

The Federal Budget Code requires that all entities that manage federal funds comply with the federal regulations on retention of documents. Conversely, the Federal Transport Ministry advised the road construction administrations that the regulations of the respective state apply.

We have drawn the attention of the Federal Transport Ministry and the Federal Finance Ministry to the disadvantages of inconsistent regulations on the retention of the accounting documents. The Federal Finance Ministry took up our recommendation. It asked the Federal Transport Ministry to make sure that the states will in future comply with the provisions on retention laid down in the Federal Budget Code. This can avoid extra administrative burdens on the road construction administrations and increase legal certainty.

Federal Ministry of Transport and Digital Infrastructure

45 Commissions and costs of building control unduly financed from federal funds: road construction administration refunds € 760,000

The road construction administration of the State of Baden-Württemberg unduly used federal funds of €760,000. It used these funds to finance commissions for the acquisition of land for federal long-distance roads and expenditure on building control. By our remonstrations, we achieved the refund of this amount by the road construction administration to the Federal Government.

The road construction administration of the State of Baden-Württemberg has federal long-distance roads built on behalf of the Federal Government. To do so, it manages federal funds.

The road construction administration commissioned a service provider to buy land for several federal road construction projects. It paid the €400,000 in commissions due to the service provider from federal funds.

In connection with the upgrading of an existing federal road, the road construction administration purchased a residential property adjacent to the new carriageway. It intended to accommodate its building control staff in that property during the road works. It also funded the purchase price of €360,000 from federal resources.

We pointed out that financing these two amounts were unduly financed from federal resources. We achieved that the road construction administration refunded the unduly used federal resources of €760,000 to the Federal Government.

Federal Ministry of Transport and Digital Infrastructure

46 Road construction administration refunds €1.9 million to the Federal Government

The State of Brandenburg charged the Federal Government excessive expenditure on the routine maintenance of federal roads. Following our audit, the State of Brandenburg refunded €1.9 million to the Federal Government.

The road construction administrations of the German States manage federal long-distance roads on behalf of the Federal Government. The relevant staff of the road construction administration carry out the routine maintenance work on all federal, state and district roads within the state concerned. Routine maintenance especially comprises the inspection, maintenance and servicing of the roads. The respective authority responsible for road construction and maintenance has to bear the resulting costs. In the case of federal roads, funding is incumbent on the Federal Government. Where state roads are concerned, the respective state has to bear the costs. For the entire routine maintenance of federal, state and district roads, the road construction administrations annually establish a standard hourly wage rate. They have to calculate the percentages on the basis of the routine maintenance working hours for each road. The standard hourly wage rate is the basis for apportioning the expenditure to be charged to the individual authorities responsible for road construction and maintenance.

We found that the apportionment of hours worked as established by the Brandenburg road construction administration in the years 2006-2012 also included working hours not pertaining to routine road maintenance. The road construction administration did not notice this when establishing its annual charges to the Federal Government. Therefore, the Federal Government paid too much for the routine maintenance of federal roads in the State of Brandenburg.

We objected to this. In response, the State of Brandenburg recalculated the portion of routine maintenance costs to be borne by the Federal Government in

97 line with our recommendations. As a result, it refunded €1.9 million to the Federal Government.

Federal Ministry of Defence

47 Development of departmental budget 14

The tasks of the Armed Forces are defined in accordance with the objectives of German security and defence policy. The necessary funds are appropriated under departmental budget 14, known as the defence budget, which totalled €32.8 billion in 2013, which accounted for 10.6 per cent of total federal expenditure in that year. €32.3 billion (equivalent to 10.8 per cent of total federal expenditure) have been budgeted for 2015.

Departmental budget 14 Federal Ministry of Defence

2013 2014 2015 actual target draft budget figures figures in € million Departmental expenditure 32,814.5 32,435.4 32,261.0 Departmental revenue 615.8 292.1 292.1 Commitment authorisations 5,307.6 6,109.7 6,239.4 (established) posts Staff 261,539 275,496 271,055

The presentation of the trend in the defence budget focuses on the following issues: • In the cause of the structural reform of the Armed Forces, it is intended to reduce the numbers of military civilian personnel. Various methods are used to achieve this goal. For instance, tasks and the related personnel are gradually transferred to other government departments. Furthermore, applications for early retirement or shortening the period of service are approved. Finally the Armed Forces help to place staff with other employers. The Armed Forces intend to delete another 16,100 civilian and

military (established) posts in the years 2015-2018. At the same time, a change in the Armed Forces personnel structure is intended to reduce the age average of Armed Forces personnel. We found that the reduction of posts from 201,509 to 261,539 has not resulted in a reduction of personnel expenditure in the years 2004-2013. Expenditure per post is significantly increased. The changes in personnel structure constituted only a minor contribution to that increase. For 2015, personnel expenditure of €10.4 billion has been appropriated in the defence budget. The current medium-term financial plan calls for personnel expenditure of €10 billion in 2018, equivalent to a 3.1 per cent reduction. Given the trend observed in past years, it remains to be seen whether the Defence Ministry will be able to achieve this target. • Defence-related capital expenditure will total about €6.2 billion in 2015, which means a reduction of 6.5 per cent on the previous year. One of the reasons given by the Defence Ministry is the imminent termination of the ISAF (International Security Assistance Force) mission in Afghanistan. • The 2015 defence budget provides for materiel maintenance expenditure of €2.5 billion, equivalent to a 7 per cent increase on the previous year. In our 2013 annual report, we had pointed out that reduce numbers on aircraft, ground vehicles and naval vessels did not necessary lead to lower expenditure on the maintenance of this materiel. We therefore felt that it was necessary to look into the reasons for the converse trend. The Defence Ministry stated that the continuous increase in maintenance expenditure was attributable to a wide variety of types of aircraft, ground vehicles and vessels with small numbers of each type. Moreover, maintenance and repair work was increasingly contracted out to industry because capacities within the Armed Forces had been reduced. The Ministry went on to say that the increasing complexity of weapons systems was another adverse cost factor. • To perform their tasks better, the Armed Forces cooperate with industrial enterprises under so-called operator models. Expenditure of €1.6 billion for such cooperation arrangements has been budgeted for 2015. The Defence Ministry is entitled to terminate some of the operator models in the years to

99 come. At present, the Ministry considers the options for delivering the services previously performed by the industrial enterprises.

100

Federal Ministry of Defence

48 Armed Forces failed to honour their commitment: For years, fuel deliveries to other entities were invoiced belatedly and incompletely

Since 2007, the Defence Ministry repeatedly promised that the Armed Forces would invoice fuel deliveries to foreign military units, public authorities and civilian recipients completely and on a timely basis. However, the Armed Forces did not take action to this effect. It issued necessary regulations only when we audited this issue once more in 2013.

The Armed Forces make deliveries of fuel (e.g. gasoil, petrol/gasoline) to foreign military units, public authorities and civilian recipients. They are obliged to charge remuneration for these deliveries in an amount which covers their costs.

As early as in 2007, we had reported that the Armed Forces had inadequate regulations in place for the invoicing of fuel deliveries to third parties. Thus, there was no assurance that all such deliveries were charged for. In addition, the Armed Forces frequently demanded payment from other governments with delays of several months or years. The time of our earlier audit, the Defence Ministry promised to take prompt steps for ensuring that fuel deliveries would be invoiced completely and on a timely basis. It affirmed its promise in 2008 after we had found that the Armed Forces still invoiced fuel deliveries with delay.

However, a follow-up audit which we conducted in 2013 showed that ten fuel deliveries worth €920,000 made by a supply ship in 2011 had not yet been invoiced. The Armed Forces had not noticed this until we carried out our follow- up audit. Furthermore, the invoicing of fuel deliveries still took a very long time.

Even though the Armed Forces have meanwhile improved their invoicing procedure, it is not acceptable, from the auditors’ point of view that the Ministry

101 remained inactive for years in spite of its promise. The Defence Ministry must ensure that its promises are honoured.

Federal Ministry of Defence

49 €11.2 million of unnecessary expenditure on an engine testing facility avoided

The Navy plans to erect an engine-testing facility that can operate under all weather conditions for eight long-range maritime patrol aircraft. Neither the necessity nor the cost-effectiveness of the testing facility has been proven. Moreover, the planned testing facility involves considerable constructional and financial risks.

In 2004, the Armed Forces had purchased eight P-3C ORION long-range maritime patrol aircraft plus a test facility for their engines from the Royal Dutch Navy. The aircraft were in poor technical condition. This required considerable repair work. In 2008, it was found that the components of the test facility stored at the Nordholz Naval Air Base were not in serviceable condition. In response, the Armed Forces planned to procure a new testing facility. It commissioned the building administration with planning the construction of a testing facility that can be operated in all weather conditions, to be used only by the Navy for testing the engines of the P-3C ORION aircraft.

By means of the testing facility, the Navy intends to enhance the operative readiness of the eight long-range maritime patrol aircraft. The building administration found out that, despite having larger numbers of such aircraft, other nations did not have a testing facility meeting the requirements formulated by the German Navy. The building administration consulted experts to identify the ideal structure of the facility and to ensure noise abatement. The functioning of the testing facility is to be demonstrated only after it has become operative. The building administration did not exclude the possibility that subsequent improvement work would be necessary.

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As a result of our audit, we criticised that the Armed Forces did not respond to the considerable constructional and financial risks by reviewing the requirements of the testing facility and reassessing the project. We expressed doubts as to whether having the testing facility in place would significantly improve the operative availability of the aircraft because problems in this respect were not caused by the exchange of engines but rather by the poor technical condition of the aircraft and the resulting necessity to carry out lengthy repairs.

We have urged the Defence Ministry not to have the all-weather-capable testing facility erected as long as the constructional and financial risks involved and the cost-effectiveness of the facility remain unclear.

Federal Ministry of Defence

50 Transfer of the functions to be performed under the Conscripts and Dependents Maintenance Act to the Federal Government without compensation from the German states

The execution of the Conscripts and Dependents Maintenance Act by the states and local authorities is particularly error-prone. Therefore, we recommended that the responsibility for executing the Act should be transferred to the Federal Government. The latter should seek compensation from the states for assuming this additional administrative burden.

The Act gives conscripts and their dependents a claim to maintenance benefits, e.g. rent allowance or compensation for lost earnings. The benefits are funded by the Federal Government. The states carry out the provisions of the Act and bear the related administrative expenditure. The Defence Ministry is responsible for ensuring that the Act is executed so as to avoid legal errors and in an expedient way.

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We found that the execution of the Conscripts and Dependents Maintenance Act by the states is particularly error-prone. This is attributable mainly to organisational weaknesses. The fewer claims to be processed, the higher was the error rate. Errors became more frequent, if the staff had to discharge other functions in addition to those to be performed under the Act. If few applications for benefits were received, the staff had insufficient experience with the execution of the Act. The deficiencies in execution resulted in excess payments at the expense of the federal budget or in the rejection of justified claims. Moreover, the Ministry exercised its oversight over the states only inadequately.

We recommended that the functions to be performed under the Act should be transferred to the Federal Government. The latter should receive compensation from the states for assuming these additional administrative burdens.

In April 2014, the Defence Ministry completed a draft Bill under which the processing of claims under the Act is to be transferred to the Federal Government. Instead of many different administrative units in the states, a single entity in the Armed Forces Administration would be responsible for processing such maintenance claims. The Act is to come into force on 1 November 2015. No provision has been made for the compensation by the states of the additional administrative expenditure to be incurred by the Federal Government.

We suggest exploring ways in which the Federal Government can obtain compensation from the states for its additional administrative expenditure.

Federal Ministry of Defence

51 Medical Service: Armed Forces intend to ensure transparency in the prescription of physiotherapy

The Armed Forces intend to ensure transparency in the prescription of physiotherapy. Moreover, they intend to increase the efficiency of their own

104 physiotherapy facilities. By doing so, they will implement our recommendations based on our identification of causes for the steep increase of expenditures on physiotherapy.

Under the free treatment arrangements in place, soldiers also receive physiotherapeutic treatment. The Armed Forces have their own physiotherapeutic facilities. However, the soldiers may also receive treatment by civilian physiotherapists, if such treatment has been prescribed for them. In the years 2002-2012, the annual expenditure on treatment by civilian therapist increased from €14 million to €23 million. Given that military personnel has been downsized, this is equivalent to more than a duplication of the average expenditure per head.

We looked into the causes of this expenditure trend. We found that:

• Conversely to the arrangements in the civilian healthcare system, the Armed Forces have scarcely any regulations for the prescription of physiotherapy. The military physicians may prescribe any number of treatments, e.g. massages, on a single prescription sheet and may issue follow-up prescriptions without limit. They made much use of these possibilities. • Although, within the Armed Forces, responsibility for the prescriptions and the handling of medical charges lies with the same unit, the Defence Ministry was not aware of this prescription practices. The Armed Forces do not have an IT-system by means of which they could systematically analyse and control medical prescription. • Conversely to the prescription form used in the civilian healthcare system, the Armed Forces’ prescription form does not have an item requiring a report on the progress of treatment. Therefore, military physicians often decide about the continuation or change of therapy without having knowledge of the previous course of therapy. • No organisational and performance targets are in place for the Armed Forces’ physiotherapeutic facilities. They carry out much fewer treatments than civilian physiotherapists.

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Following our recommendations, the Defence Ministry intends to ensure transparency in the prescription of physiotherapy, committing itself to improving the prescription procedures and the possibility of monitoring prescriptions. The administrative and medical processes are supported by IT. Moreover, the Armed Forces would renew their own physiotherapeutic capacities and adjust them where appropriate.

We will observe whether the Armed Forces will implement the measures promised by the Ministry.

Federal Ministry of Defence

52 Armed Forces improve their management of ammunition stocks

After we had pointed out several deficiencies in the management of ammunition stocks, the Armed Forces have taken remedial action. They revised their procedures for identifying ammunition needs and stocked unnecessary procurements. They have taken measures to prevent the corrosion of small arms and ammunition. The Armed Forces procured ammunition on the basis of the requisitions made by the services.

Ammunition needs were estimated on the base of assumptions. In the case of high-consumption ammunition calibres, the estimates were practically always excessive. In the years 2001-2007, we had repeatedly pointed out the deficiencies of this method of determining ammunition needs. We also had pointed out deficiencies in the management, storage and monitoring of ammunition stocks.

In 2012, we once more audited the procedures for ammunition stock management. We found that the Armed Forces had not yet eliminated the deficiencies. The procurement of ammunition on the basis of assumptions, which we had criticized on the basis of our previous audits, still led to excessive

106 procurements. In several cases, the services requisitioned much more small arms ammunition than they actually consume.

The excessive procurements of ammunition resulted in excessively long storage periods. Together with inadequate storage of the ammunition, various types of small arms ammunition were damaged by corrosion. This was not prevented by ammunition monitoring.

The Defence Ministry has eventually taken up the potential for optimisation which we had pointed out. The Ministry worked out solutions, which it means to implement in the handling of ammunition requisitions by the services and in the management of ammunition stocks. The Ministry also committed itself to make improvements in the storage conditions, the packaging and the monitoring of ammunition stocks. Damage through corrosion is thereby to be avoided in future. We shall observe further developments.

Federal Ministry of Health

53 Development of departmental budget 15

The Health Ministry is responsible for the legal framework of statutory health and long-term care insurance and awards grants to the statutory health insurance funds. In addition it has regulatory powers in the field of health and addresses issues concerning health protection and the fighting of diseases. Five subordinate authorities assist the Ministry with its work.

In 2013, expenditure under the Health Ministry’s departmental budget totalled €12 billion and accounted for 3.9 per cent of total federal budget expenditure.

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Departmental budget 15 Federal Ministry of Health

2013 2014 2015 actual target target figures figures figures in € million Departmental expenditure 12,014.9 11,052.7 12,056.0 Departmental revenue 160.7 99.5 107.0 Commitment authorisations 40.1 71.7 (established) posts Staff 1,982 2,022 2,068

• In 2013, 96 per cent (€11.5 billion) of the expenditure under this departmental budget were accounted for by lump sum grants given to the statutory health insurance funds to compensate them for providing non insurance benefits. Together with the membership contributions of the insured persons, these grants flow into the general health fund managed by the Federal Insurance Office. The health insurance funds receive grants from the General Health Fund for their expenditures on benefits and administration. For the year 2014, the federal grant was reduced to €10.5 billion while it is to amount to €11.5 billion in 2015. For 2016, the Federal Government medium-term financial plan calls for a federal grant of €14 billion which is to increase to €14.5 billion in the subsequent years. • In our 2013 annual report, we objected to the annual financial statements of the General Health Fund. These statements were scarcely transparent, had been submitted late and had not undergone external audit. The Public Accounts Committee of the German Parliament’s Budget Committee asked the Health Ministry to eliminate these deficiencies and make arrangements for an independent audit of the annual financial statements of the General Health Funds and for the discharge of the Federal Insurance Office. • Under new legislation that came into force in 2014, the Health Ministry has given grants towards the taking out of private long-term care insurance policies retroactive from 2013. €22 million have been appropriated for this purpose in the 2014 federal budget. During the first year, the share of

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administrative costs covered by this appropriation is disproportionately high because it was necessary to develop an IT-assisted procedure for processing. • The Ministry gave grants of €44 million to institutions, associations and individual projects in the healthcare sector and to research institutes belonging to the Leibniz Association. Moreover, it spent €24 million on departmental research and pilot projects in 2013. €36 million were used for health education and prevention of sickness and €33 million for international tasks. • The 2013 expenditures under the newly introduced budget titles for scientific assistants in departmental research facilities of the Health Ministry has clearly exceeded the appropriated amounts in all cases. We take a critical view of this because the establishment plans for these staff were abolished and steering was to be affected solely via the appropriated amounts.

Federal Ministry of Health

54 No action taken on inefficient purchase of works of art worth €200,000 by regional association of company health insurance funds

The legal predecessor of a regional association of company health insurance funds bought 86 original works of art worth about €200,000. By doing so, it did not make efficient and economic use of the insurance contributions which it held in trust.

The legal predecessor of a regional association of company health insurance funds (Association) bought 86 original works of art for its office building at a cost of about €200,000. It considered this as appropriate. The Association had documented the purchase of this work of art only incompletely. The invoice gave rise to questions about the circumstances of the transaction which it was impossible to clarify without further examination. In particular, the itemized costs

109 per work of Art stated in the aggregate invoice were implausible without further explanation.

We considered the purchase of the 86 original works of art at a cost of €200,000 as a particular infringement of the Association’s duty to use funds efficiently and economically. Like all social insurance bodies, the Association has to use the contributions of its insured persons on the basis of stewardship. The association is obliged to collect revenues such as compensation claims timely and completely.

The Association admitted that the purchase of the works of art had been wrong. However, it declined to claim compensation from the persons then in charge. It argued that the purchase had not resulted in any damage and that is view was also confirmed by a legal opinion it had commissioned. The Association further argued that ‘adequately’ decorating its premises with works of art was appropriate in the circumstances. Therefore the Association denied that it had infringed any obligations under budgetary law.

We uphold our opinion that, by purchasing the 86 original works of art, the Association infringed its obligation to spend resources efficiently and economically. Moreover, the Association has to account for its expenditure in a comprehensive and transparent way. In conjunction with the supervisory authority of the state in question, the Federal Health Ministry should take action to ensure that compensation claims are considered and enforced by the Association if appropriate.

Federal Ministry for the Environment, Nature Conservation, Building and Nuclear safety

55 Development of departmental budget 16

The said Ministry is responsible for the Federal Government’s environmental policy and, since the organisational directive of the Federal Chancellor dated

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17 December 2013, also for building policy. Apart from environmental protection, its task includes national and international climate protection, nature conservation and nuclear safety. In addition the Ministry now is responsible for building activities, the building industry, federal construction works, urban development, housing, rural infrastructure and public building law. It spent €1.5 billion in 2013. In view of the Ministry’s new responsibilities, total expenditure of €3.7 billion has been budgeted for 2014. The 2015 budget calls for expenditure of €3.9 billion.

Departmental budget 16 Federal Ministry for the Environment, Nature Conservation and Nuclear Safety

2013 2014 2015 actual target draft budget figures figures in € million Departmental expenditure 1,499 3,667 3,905 Departmental revenue 255 773 721 Commitment authorisations 570 1,747 1,713 (established) posts Staff 2,695 4,305 4,330

• In the amount of €2.1 billion the expenditure on housing and urban development (accounting for 57 per cent of the 2014 expenditure) is the financially most important item. €494 million (13 per cent of the total expenditure budget) have been appropriated for the safety of nuclear reactors and the final storage of nuclear waste. The share of expenditure on national and international climate protection totalled €386 million (11 per cent in 2014). • €423 million had been appropriated in 2014 for the administrative expenditures of the authorities within the departmental remit (personnel expenditures including retirement benefits, expenditures on supplies, services and investments; with final storage projects excluded from all these items) and will increase to €431 million in 2015. These expenditures are attributable to the Ministry and its subordinate authorities. The latter are the Federal Environmental Agency, the Federal Agency for Nature

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Conservation, the Federal Office for Radiation Protection, the future Federal Agency for the Regulation of Nuclear Waste Management and since the organisational directive mentioned above, also the Federal Office for Building and Regional Planning. • The departmental budget revenues of €773 million in 2014 have been largely generated by the repayment of housing construction loans which amounted to €452 million, thus accounting for 58 per cent of all revenues. The payments by the future users of the final storage facilities for radioactive wastes have been budgeted at €254 million, accounting for 33 per cent. • For the years 2016-2018, the medium-term financial plan calls for expenditures to remain essentially equal to the current level of €3.9 billion subject to small annual variations.

In case of this departmental budget, financial planning for future years continues to be subject to numerous financial risks which so far have not been reflected in the federal budget. One major risk is the reliable estimation of the expenditure on the financial storage of radioactive wastes. The annual average expenditure on final storage projects estimated in the medium-term financial plan at €427 million are based on a rough estimate. This is attributable to the fact that the Ministry has no robust figures on the total costs of the final storage projects.

Federal Ministry for the Environment, Nature Conservation, Building and Nuclear Safety

56 Prevention of corruption in federal building projects in the State of Saxony is improved

Following our recommendation, the Saxon Ministry of Finance has taken steps to further improve the prevention of corruption in the procurement of building

112 services for federal construction projects in Saxony. This will further impede manipulations in the awarding of building contracts.

We found that the regulations on preventing corruption in the awarding of building contracts for federal construction projects in Saxony were largely complied with. However, omissions and infringements were found in a number of contract-awarding procedures. For instance, possibilities for manipulations were not precluded or the cross-check principle was not complied with.

These omissions were attributable mostly to inadequate knowledge of the regulations on corruption prevention, mistakes in implementing these regulations or organisational deficiencies. In addition, some of the regulations on the prevention of corruption are inadequately harmonised and can be misunderstood.

The Saxon Finance Ministry has acknowledged the audit findings and emphasized the importance of the regulations on corruption prevention. It took up our proposals and will improve corruption prevention measures. The Federal Ministry will consider a harmonization of the concepts used in the federal building regulations.

We consider the measures thus announced as an important step towards improving the prevention of corruption in the awarding of building contracts and towards eliminating uncertainties in the application of the relevant regulations.

Federal Ministry for the Environment, Nature Conservation, Building and Nuclear Safety

57 Better use will in future be made of the expertise of the construction administration also with relation to public-private partnerships

In response to our recommendation, the Building Ministry will urge the other

113 federal ministries to involve the construction administration also in connection with construction projects of recipients of federal grants carried out under public-private partnership (PPP) arrangements. This serves to make better use of the expertise of the construction administration also for such PPP projects.

Where grants towards a construction project exceed certain thresholds, it is obligatory to involve the technically responsible construction administration. One of the tasks of that administration is to advise the grantee when the latter prepares application and design documents for its construction project. In that context, the grantee also has to review alternative options to identify the option to procure floor space that provides best value for money, e.g. build, rent premises or procure premises via PPP.

A grantee that receives institutional funding mostly from the Federal Ministry for Education and Research intends to erect an event centre. He opted for a new building to be erected under PPP arrangements without proper study of all options for meeting its space needs. The construction administration was not involved, although it would have had to be involved in view of the estimated costs of the building to be erected. The reason given by the Education and Research Ministry was that, under PPP, the contracting entity will not be the grantee but the potential private investor and that, therefore, involvement of the construction administration could be dispensed with.

We recommended that the Building Ministry clarify the role of the construction administration in connection with PPP projects of recipients of federal grants because the construction administration must also be involved in PPP projects of grantees receiving institutional funding. The Federal Government funds such building projects indirectly. The professional expertise of the construction administration is to support cost-effective building work. Following our recommendations, the Education and Research Ministry has involved the construction administration in the project.

Following our recommendation, the Building Ministry will inform the other federal ministries of this in writing.

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Federal Ministry for the Environment, Nature Conservation, Building and Nuclear Safety

58 Reimbursement claim calculated too high: State of Thuringia refunds building grants of €650,000 to the Federal Government

Following our recommendation, the Building Ministry demanded the refund of cost reimbursements of €650,000 from the State of Thuringia. As we suggested, the Ministry also intends to promptly clarify open questions with the States of Brandenburg, Thuringia and Saxony-Anhalt concerning the cost reimbursement for decontamination and explosive ordnance disposal.

The Federal Government may enter into administrative agreements with the German states about the transfer of building construction tasks to the states. This also includes decontamination and explosive ordnance disposal.

The Federal Government made excess payments of €650,000 to the State of Thuringia as compensation for decontamination and explosive ordnance disposal carried out by the State. After we identified the excess payment, the Federal Government claimed the refund of the excessive reimbursement. The State of Thuringia acknowledged the claim and refunded the money to the Federal Government.

The Building Ministry also intends to follow our recommendation to improve the examination of the states’ invoices. Furthermore, it intends to promptly clarify, with the States of Brandenburg, Thuringia and Saxony-Anhalt, the open questions concerning the reimbursement of costs of decontamination and explosive ordnance disposal.

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Federal Ministry for Family Affairs, Senior Citizens, Women and Youth

59 Development of departmental budget 17

Within the Federal Government, the Federal Ministry for Family Affairs, Senior Citizens, Women and Youth is responsible for the policies on families, senior citizens, gender equality and youth. In particular, it funds statutory benefits for families and gives grants to institutions and for projects.

The Federal Agency for Media Harmful to Young Persons and the Federal Office of Family Affairs and Civil Society Functions are subordinate to the Ministry as superior federal authorities. The Federal Anti-Discrimination Agency is an administrative unit within the Ministry.

In 2013, the Ministry’s expenditure totalled €7.2 billion, thus accounting for 2.3 per cent of total federal expenditure.

Departmental budget 17 Federal Ministry for Family Affairs, Senior Citizens, Women and Youth

2013 2014 2015 actual target draft budget figures figures in € million Departmental expenditure 7,164.7 7,959.5 8,456.5 Departmental revenue 72.2 68.5 68.4 Commitment authorisations 142.0 490.5 551.7 (established) posts Staff 1,255 1,314 1,293

The bulk of this departmental budget serves to fund statutory benefits for families. This includes e.g. parental allowance. Another benefit, child-care benefit for stay-at-home parents, was introduced effective 1 August 2013. In 2013, the statutory benefits for families amounted to €6.2 billion, thus accounting for 86 per cent of the expenditure under this departmental budget. This expenditure is to increase €7.0 billion in 2014 and to €7.5 billion in 2015.

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After the suspension of the obligatory national service (both civilian and military service) effective 1 July 2011, the Federal Office of Family Affairs and Civil Society Functions has been given numerous new tasks. Its remit now covers such matters as the Federal Voluntary Service and the promotion of mentoring under the Juvenile Voluntary Service Act. In addition, it has assumed functions for which the Ministry itself was previously responsible. We monitor this process.

Furthermore, the Ministry gives grants to institutions and projects e.g. for linguistic integration in child day-care centres or for strengthening civil society.

A large part of the grant funds for institutions and projects in the field of child and youth policy are channelled to local and regional entities that deliver relevant services or to the states in order to fund local or regional programmes. As early as in 2007, the President of the Bundesrechnungshof had criticised, in his capacity as Federal Performance Commissioner, that such tasks are funded by the Federal Government rather than by the states. The Commissioner had advocated greater operative and financial responsibility of the states.

Federal Constitutional Court

60 Development of departmental budget 19

The Federal Constitutional Court with its headquarters in Karlsruhe is an independent court of law. It monitors compliance with the Constitution of the Federal Republic of Germany. Its rulings are binding on all courts of law, public authorities as well as federal and state constitutional bodies. In FY 2013, the Federal Constitutional Court spent €37 million. This amount accounts for 0.01 per cent of total federal expenditure.

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Departmental budget 19 Federal Constitutional Court

2013 2014 2015 actual target draft budget figures figures in € million Departmental expenditure 37.0 46.1 29.1 Departmental revenue 0.1 0.04 0.04 Commitment authorisations 1.9 0 0 (established) posts Staff 163 172 172

• The share of expenditure on staff and pensions in this departmental budget exceeds the average. In 2013, these expenditures accounted for more than 60 per cent of the Court’s total expenditure. • Up to the end of 2014, the comprehensive renovation of the Court’s premises will be completed at a total cost of €53.5 million. Therefore, the Court’s total expenditure increased significantly in the years 2012-2014. • Since 2014, the Court has stepped up its public relations activities. It also has budgeted more funds for international contacts, publications and documentations.

Federal Ministry for Economic Cooperation and Development

61 Development of departmental budget 23

The Federal Ministry for Economic Cooperation and Development formulates the Federal Government’s development policy. It works out the regional, technical and financial strategies for development cooperation.

German development policy aims at accomplishing the internationally agreed millennium goals, e.g. providing all children with full primary education, fighting poverty sustainably and promoting global public goods, e.g. climate and

118 environmental protection and security.

In 2013, the Ministry spent €6.0 billion. Spending is to increase to €6.4 billion in the years 2014-2015.

Departmental budget 23 Federal Ministry for Economic Cooperation and Development

2013 2014 2015 actual target draft budget figures figures in € million Departmental expenditure 6,026 6,444 6,445 Departmental revenue 710 566 566 Commitment authorisations 4,786 8,079 5,600 (established) posts Staff 695 736 738

• Bilateral inter-governmental development cooperation (divided into financial and technical cooperation) was the biggest expenditure item, totalling €2.8 million, thus accounting for 46 per cent of the Ministry’s total spending. • €755 million (13 per cent of total expenditure) was spent on activities of non- governmental development cooperation designed to promote civil society, local and economic development. • In the field of multilateral and European development cooperation, contributions to international organisations totalled to €2.2 billion (36 per cent of total expenditure) as in the previous year. • The expenditure on research, evaluation and capacity building in development cooperation totalled €36 million (1 per cent of total expenditure). • Administrative expenditure amounted to €128 million (2 per cent of total expenditure).

The 2013 departmental budget’s revenues of €710 million largely came from loan repayments and interest payments under financial cooperation.

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Up to 2013, the Ministry was able to draw on additional resources from the Special Energy and Climate Fund to finance projects in the field of international climate and environmental protection. With the 2014 budget, the financing of projects for international climate and environmental protection from the Special Energy and Climate Fund is implemented in the federal budget. The 2014 departmental budget provides for a new expenditure title with resources of €139 million.

The Federal Government has repeatedly committed itself to the objective of increasing the proportion of public expenditure on development cooperation in Germany’s gross national income to 0.7 per cent by 2015. In 2012, this proportion was 0.37 per cent. According to a provisional calculation, this proportion will be 0.38 per cent in 2013.

Federal Ministry of Education and Research

62 Development of departmental budget 30

The Federal Ministry of Education and research has the task to promote education, science and research. In 2015, €15.3 billion have been appropriated for these purposes in the Ministry’s departmental budget 30, representing an 8.6 per cent increase over the previous year. This continues the trend of rising federal expenditure on research and development.

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Departmental budget 30 Federal Ministry of Research and Development

2013 2014 2015 actual target draft budget figures figures in € million Departmental expenditure 13,849.7 14,053.4 15,266.4 Departmental revenue 127.5 89.4 89.4 Commitment authorisations 4,309.1 4,682.8 5,482.7 (established) posts Staff 876 932 914

• The coalition agreement for the 18th legislative period called for the appropriation of €9 billion for priority measures in the fields of education and research. Up to the end of legislative period, an additional €7.4 billion are available under this departmental budget. These additional funds are to be used to increase the Federal Government’s contribution to educational and vocational training grants, to the funding of scientific and higher education institutions and to the implementation of the high technology strategy. • We had criticised the excessive general reduction in expenditure of €410.5 million in the 2014 budget. For 2015, the general reduction in expenditure is significantly higher at €478.4 million. In the course of budget execution, the Ministry itself will decide where the savings are to be made. With such a high general reduction in expenditure, the Legislature relinquishes to a questionable extent its control of spending, i.e. of determining expenditure priorities in this departmental budget. • 74 per cent of the budget funds appropriated for 2015 are already committed by virtue of long-term agreements with the states and of legislation. This leads a limited discretionary scope to the Ministry for initiating its own projects in the fields of education and research. • A large part of federal expenditure under this departmental budget is made available to the states with a view to financially supporting their tasks in the field of education. This objective is also pursued by a planned modification of a constitutional provision which is to allow the Federal Government to

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provide financial support to higher education institutions on a permanent basis. As a matter of principle, we have a critical view of joint financing by the Federal Government and the states, since these may result in an inefficient use of resources. In addition, there is the risk of increasing calls for federal funding even in matters that come under the core remit of the states. We therefore advocate an approach under which tasks are conferred to a single level of government and that level of government is given the necessary financial resources. • The Ministry provides funding of more than €5 billion to scientific institutions. The Federal Government and the states have committed themselves vis-à-vis big-science institutions to increase funding by 5 per cent annually. Since 2012, the Freedom of Science Act has allowed the institutions to use grant funds received much more flexibly. In our opinion, it is necessary to create more transparency concerning the impact of the flexible-use arrangements and spending increases in order to enable Parliament to exercise adequate control.

Federal Ministry of Education and Research

63 Consistent grant monitoring in educational and research projects not yet ensured

There is still much scope for improvement where the monitoring of grants towards educational and research projects is concerned. We repeatedly issued recommendations to the Federal Ministry of Education and Research as to how internal processes could be enhanced and backlog of work could be cleared. We expect the Federal Ministry of Education and Research to assume its responsibility for ensuring an adequate use of grants and to address known weaknesses.

Every year, the Federal Ministry of Education and Research awards grants of up to €6 billion towards educational and research projects. The recipients of such grants need to give proof of the regular and efficient use of the federal

122 funds. Such (documentary) proof is to be examined by the Federal Ministry of Education and Research.

As we repeatedly criticised its grant monitoring procedures, the Federal Ministry of Education and Research had made a real effort in the past few years to implement improvements in this area. However, a recent audit showed that the quality and effectiveness of its monitoring are still insufficient. For example, this was true for the database driven monitoring of time limits and deadlines. When assessing projects from a technical point of view, obvious problems in project implementation were not adequately taken into account. As cases covered by our audit showed, the Federal Ministry of Education and Research did not try to recover payments or did so only reluctantly.

In our opinion, it is important that the Federal Ministry of Education and Research defines binding future milestones in an overall strategy in order to ensure systematic und consistent grant monitoring. To this end, it could particularly start with • enhancing the “profi”-database, in particular by automating processes, e.g. to obtain information about insolvencies prior to making any payment, • reducing backlogs of work swiftly, especially with regard to the pilot project on cost-based pro-rata grants towards projects, • revising the handbook on project funding with a view to creating an updated, comprehensive and user-friendly set of rules, • further developing a systematic and up-to-date IT-based overview of relevant ancillary provisions that can be used to continually improve the quality of grant-award notices and • intensifying measures to inform and to train employees of the responsible units of the Federal Ministry and the project sponsors and enhancing the effectiveness of internal controls in order to ensure strict grant monitoring and the enforcement of refund claims.

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Federal Ministry of Education and Research

64 Energy efficiency of premises of the Max Planck Society for the Advancement of Science will be enhanced

In order to be able to efficiently operate the technical facilities of its premises, the Max Planck Society for the Advancement of Science pledges to update inventory documents of its premises on a regular basis and to establish a full energy monitoring system. This will allow the Max Planck Society to identify savings potentials and to optimise energy consumption. Moreover, the Federal Ministry of Education and Research pledges to issue a regulation reducing the use of large glass panes, and thus energy consumption, when constructing new buildings for Max Planck Society. In implementing these measures, the Federal Ministry and the Max Planck Society follow the German SAI’s recommendations on enhancing energy efficiency of buildings.

Grants to the Max Planck Society are awarded by both Federal Government and federal states.

The Max Planck Society has its own construction department. This department, that is responsible for planning the construction, conversion and expansion of buildings, may rely on freelancers.

Assisted by the regional audit office in Berlin, the German SAI examined five existing institutes and the construction plans of eight new institutes in terms of energy efficiency. The German SAI found that inventory documents are incomplete and that energy consumption has not been fully measured and assessed. Hence, an energy efficient operation is possible only to a certain extent. Furthermore, the German SAI found that the cooling concept employed for glazed entrance halls of existing institutions is energy intensive and partly ineffective. As construction plans for new institutes show, entrance halls will still have large glass facades although the disadvantages of such a construction are well documented.

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The German SAI requested the Federal Ministry of Education and Research to ensure that inventory documents are updated regularly and that energy consumption is fully measured and assessed. The German SAI also required the Federal Ministry to issue a regulation limiting the construction of glass facades in entrance halls.

The Federal Ministry of Education and Research follows the German SAI’s recommendations. The Max Planck Society pledges to regularly update inventory documents and to fully measure and assess energy consumption in the future. Moreover, the Federal Ministry pledges to reduce the use of glass panes to a meaningful level.

Federal Ministry of Education and Research

65 Grant recipient returns €0.3 million euros to Federal Government

Following the German SAI’s indication of non-compliance with grant terms and conditions the recipient of a grant awarded for the construction of a residential school for apprentices returned €310,000 to Federal Government.

Federal Government may withdraw a grant, if, for example, the grant recipient does not comply with grant terms and conditions or misuses grant funds.

The Federal Ministry of Education and Research promotes inter-company vocational training centres. The Federal Institute for Vocational Education and Training implements funding programmes on behalf of the Federal Ministry.

A grant recipient claimed a grant to partly cover construction costs of a residential school. The school building also includes a caretaker’s flat. The Federal Institute set out in the grant terms and conditions that the grant recipient shall comply with the regulations on contract awards for public works. The Federal Institute further stipulated that the grant recipient shall use the funds in accordance with grant terms and conditions and to what amount costs

125 for project control services are eligible for grant funding.

The German SAI found that the grant recipient did not fully comply with the regulations on contract awards for public works. Moreover, it occurred in three cases that the grant recipient claimed payment of costs for project control services totalling an amount three times higher than the amount acceptable to Federal Government. And, the German SAI found that the grant recipient did not use all areas of the building in accordance with the grant terms and conditions: The caretaker’s flat stood empty for several years.

The German SAI alerted the Federal Institute to the non-compliance of the statutory provisions governing public grants. The German SAI recommended that the Federal Institute examines whether the grant must be claimed back in whole or in part. The Federal Institute followed the German SAI’s recommendations and reduced the awarded grant amount. The grant recipient returned €310,000 to Federal Government.

Federal debt

66 Development of departmental budget 32

In 2013, expenditure under this departmental budget totalled €31.9 billion, while revenue amounted to €23.5 billion.

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Departmental budget 32 Federal Debt

2013 2014 2015 actual target draft budget figures figures in € million Departmental expenditure 31,930 28,552 28,162 Departmental revenue 23,491 7,758 1,080

• Total expenditure under the federal budget has for many years exceeded revenues. The Federal Government has regularly closed this gap by borrowing (net new borrowing). The proceeds from borrowing are stated as revenues in this departmental budget. For the first time during the last 45 years, the Federal Government intends to balance the budget without new borrowing in 2015. • The Federal Government replaces mature debts from previous years by new borrowing (debt rollover). By doing so, it defers the debt and interest burden further into the future without reducing the accumulated debt. Together, net new borrowing and debt rollover (replacement borrowing) add up to gross federal borrowing, which totalled €243.2 billion in 2013. At year-end 2013, the accumulated federal debt totalled €1,067.9 billion. In 2015, gross borrowing is to drop again to below €200 billion. • Expenditure under this departmental budget comprises mainly interest charge the Federal Government has to pay for its accumulated debt. In In the medium term, interest expenditure is expected to increase from €27.6 billion in 2014 to €34.3 billion in 2018. Whether this forecast will be borne out will depend on the future trend in interest rates. • Moreover, this departmental budget includes revenue and expenditure relating to sureties, guarantees and other warranties. The Federal Government uses these tools above all for promoting economic activity. It supports projects at home and abroad provided that they merit assistance or are in the public interest.

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• The 2013 Budget Act authorised the Federal Government to grant warranties up to a ceiling of €449.4 billion. Warranties actually granted totalled 76.1 per cent of this ceiling. The accumulated damage from warranties granted earlier amounts to €14.3 billion, the bulk of which is accounted for by defaults on guaranteed domestic debt. • Outside the Budget Act, the Federal Government grants financial assistance and assumes guarantees in favour of German financial sector enterprises in order to sustain the functioning of the financial markets. For this purpose, it set up two off-budget federal funds: the Financial Market Stabilisation Fund and the Restructuring Fund. • To ensure financial stability in the European Monetary Union, the Federal Government has assumed guarantees i.a. of €22.4 billion in credit assistance to Greece and up to €211 billion for the European Financial Stability Facility (EFSF). These guarantees are not disclosed in the federal budget. • In 2012, the Member States of the European Monetary Union set up the permanent European Stability Mechanism (ESM), which replaced the temporary EFSF in 2013. The EFSF continues to complete the transactions connect with the financial assistance to which Member States are already committed.

The purpose of the ESM is to safeguard the financial stability of the euro area and its Member States. It supports Member States, if they find borrowing in the capital markets impossible or difficult. To do so, it may grant loans to the Member States and for the restructuring of banks, grant preventive credit lines and purchase its Member States’ sovereign debt instruments. In addition, the planned European Single Resolution Mechanism for banks is to authorise the ESM also to give direct financial assistance to banks.

The ESM has an authorised capital stock of €700 billion, of which its Member States have directly paid in €80 billion, the German share being €21.7 billion. This expenditure has been appropriated in the federal budget under

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departmental budget 60 (General Fiscal Administration). Germany’s liability to make payments into the ESM’s capital stock is limited to €190 billion.

General Fiscal Administration

67 Development of departmental budget 60

Departmental budget 60 “General Fiscal Administration” differs fundamentally from the other expenditure-oriented departmental budgets that reflect the structure and tasks of federal ministries. This departmental budget serves above all to disclose those federal revenues and expenditures which • have no substantive connection with any government department or

• are connected with various departmental remits without any ministry having the lead responsibility.

Departmental budget 60 focuses on revenues, above all tax revenues (€271.3 billion in 2013). Under the medium-term financial plan for the period up to 2018, they are to rise to €312 billion and to account for nearly 95 per cent of the total federal budget. Given their financial importance, they are a major item on our audit agenda (cf. report items 68, 69, 70, 73, 74 and 76 below).

In comparison to revenues, expenditures account for a minor portion of departmental budget 60. In 2013, they totalled €27.5 billion and are going to decline to €16.3 billion in 2014. The reasons for this are essentially the following: In 2014, only one instalment of €4.3 billion was paid to the European Stability Mechanism. In the previous year, two instalments had to be paid. Moreover, the grant of €8 billion to the Reconstruction Aid Fund was a non- recurring item. A grant of €0.7 billion from the Federal Budget to the off-budget Energy and Climate Fund was appropriated for the first time in 2014.

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Departmental budget 60 General Fiscal Administration

2013 2014 2015 actual figures target figures draft budget

in € million

Departmental revenue 271,363.9 276,989.5 286,992.9

Departmental expenditure 27,468.1 16,276.0 14,145.0

Commitment authorisations 112.7 57.0 132.0

According to the 2015 draft budget, the revenues under departmental budget 60 will increase by 3.6 per cent in comparison to the previous year. A major contribution to this increase is expected from tax revenues that are to rise by €10.3 billion. A further increase of tax revenues to up to €311.8 billion in 2018 has been forecast for the subsequent years of the financial planning period. Thus, the significance of tax revenues for funding federal expenditure will continue to increase. The 2015 draft budget calls for a further reduction of expenditure by €14.2 billion. One reason for this is the fact that no further instalment has to be paid into the ESM in FY 2015. On the other hand, expenditure on increasing staffing levels rose. Moreover, in contrast to the previous year, no general reduction in expenditure has been budgeted. Up to 2018, when the current financial planning period ends, expenditure is to remain at the 2015 level.

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General Fiscal Administration

68 Simplify flat-rate calculation of taxable profits

If the prerequisites for the flat-rate calculation of profits of farmers and forest owners are no longer met, the tax office has to officially notify the taxpayer accordingly. Only after receiving such notification are farmers and forest owners no longer allowed to calculate their profits on the basis of flat rates. This procedure involves a high administrative burden and is vulnerable to misuse. Moreover, it leads to unequal tax treatment. Abolishing these notifications would therefore also contribute to tax equity.

Subject to certain prerequisites being met, the Income Tax Act allows farmers and forest owners to use a simplified method of calculating their profits on the basis of flat rates. If these prerequisites are no longer met, the tax office has to officially notify the taxpayers that they have to change their profit calculation method. Only after receiving such notification are farmers and forest owners no longer allowed to calculate their profits on the basis of flat rates. This applies from the beginning of the subsequent financial year.

We audited the respective reasons for notifying taxpayers that they may no longer use the flat-rate method. In many tax cases which we reviewed, necessary information was missing. In addition, farmers and forest owners used this formal procedure to their advantage. When an official notification had been issued, they claimed that they would meet the prerequisites again in the future. However, the subsequent income tax returns showed that a simplified calculation of profits was no longer admissible. Tax offices were able to demand that another profit calculation method be used only in the subsequent financial year.

Furthermore, we found that the profits calculated by means of the flat-rate method differed significantly from actual earnings.

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We consider this as a threat to the principle of taxation according to the taxpayer’s ability to pay. We therefore recommend the abolition of the formal procedure of notifying taxpayers of the fact that the prerequisites for using the flat-rate method of profit calculation do no longer apply. This could also prevent future cases of inequitable taxation.

The Federal Ministry of Finance concurs with our opinion that it is possible to simplify flat-rate profit calculation.

We expect the Finance Ministry to take speedy action to have the law changed by initiating a legislative project to this effect.

General Fiscal Administration

69 Accurately determine the results of special VAT audits

For statistical purposes, the tax offices frequently overstated the additionally assessed amounts of tax generated by special VAT audits. The overall statistics therefore do not reflect the real success of such tax audits. This distorts the comparison between the German states and may lead to a misallocation of tax audit staff. Therefore, the Federal Finance Ministry has to take steps to ensure consistent and accurate assessments.

The tax offices carry out special VAT audits to verify VAT final or provisional returns. These audits focus on fighting VAT fraud. The German states keep statistics about the results of these special VAT audits. In particular, these statistics serve to disclose the additional amounts of VAT assessed as a result of these special audits. The methods for calculating such additionally assessed amounts are prescribed by statistical principles that apply nation-wide. The Federal Finance Ministry aggregates the data furnished by the states to produce national statistics. According to these, amounts additionally assessed on the basis of special VAT audits totalled €2 billion in 2013.

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We found that the tax offices frequently did not comply with the statistical principles. Some German states had even instructed their tax offices to calculate the additionally assessed amounts by other methods. Therefore, the amounts reported were higher than the additional tax liabilities of businesses. In a number of cases, the tax offices reported additional assessments even in cases where the VAT liability after the tax audit was actually lower than before. Already years before, several states had drawn the attention of the Federal Finance Ministry to interpretation problems and ambiguous wordings in the statistical principles. However, the Federal Finance Ministry did not act on this information.

We hold that the Federal Finance Ministry has to ensure that the additionally assessed amounts are calculated accurately. It eventually must revise the statistical principles so as to unambiguously prescribe the methods for calculating the additional assessments. A meaningful analysis of the results of special VAT audits is possible only if they reflect the real success of the special VAT audits. Conversely, in accurate figures will distort the comparison between the states. They do not lend themselves to being used as performance indicators and may lead to a misallocation of audit staff.

General Fiscal Administration 70 Finally updating the central information system for VAT control

The German part of the information system for VAT control in the European Union is obsolete. However, an efficient exchange of information between fiscal authorities is a key element of the control in order to prevent tax losses and fraud. The Federal Ministry of Finance therefore has to provide for the information system’s immediate update after eight years of planning and previous unfulfilled promises for completion.

In the case of the intra-Community movement of goods between traders, despatches to other EU Member States are exempt from tax for the selling trader. The purchaser has to pay VAT for the imported goods in the country of

133 destination. For monitoring the compliance with this requirement, the Member States’ tax administrations exchange information on intra-Community supplies and purchasing transactions. In the 1990s, the VAT Information Exchange System (VIES) was set up for this exchange of data.

The responsible Federal Ministry of Finance has known for a long time that the German part of the system is obsolete and lacks user-friendliness. An update until 2009 was already proposed in 2006 but remained unsuccessful. In 2011, the federal government department still developed a detailed strategy for the update. We therefore demanded in our 2011 annual report that the update be completed immediately. The federal government promised the Public Accounts Committee to complete the updated system (VIES-neu) by 30 June 2014.

In April 2013, however, the federal government department postponed further implemention of VIES-neu for at least two years. We criticised the new delays and referred to the Public Accounts Committee’s clear decision.

The federal government department admitted that VIES-neu had to be implemented immediately. It stated that the development, however, had to be postponed in favour of priority projects but it intended to use all possibilities resulting from available resources for an accelerated implementation.

We consider this declaration as insufficient. After eight years of planning, VIES- neu has to be implemented immediately. The federal government department’s reference to other projects does not justify the postponement. All IT systems required for fighting tax losses and VAT fraud have to be developed. We therefore demand that a binding overall planning for the information system’s update be established by the Federal Ministry of Finance. The planning should include clear deadlines and milestones. The federal government department has to carry out regular reviews, and, if necessary, make adjustments.

General Fiscal Administration

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71 Improved procurement procedures for residential properties’ maintenance

In its new guideline, the Institute for Federal Real Estate defined the building contracts’ procurement consistently and more clearly. It specifies the documentation and control requirements which ensure transparency and efficiency in the building maintenance. Thus, the Institute for Federal Real Estate follows our recommendation.

The Institute for Federal Real Estate has to observe the Federal Budget Code and the public procurement law when managing its properties. We reviewed the Institute’s building maintenance measures for residential properties, including work to maintain the value of the property and repair work. We found that the Institute infringes central requirements of the budget management and contract awarding in many cases. Thus, there were no efficiency analyses or they were not adequately documented. The Institute awarded construction work without a formal procedure (single tendering) although the value threshold was exceeded. Furthermore, fewer tenders were obtained than required. In almost any cases, single tendering procedures were not adequately documented. The Institute did not provide a central working aid.

We pointed out that efficiency had to be proven for building maintenance measures and demanded that the staff’s compliance with the regulations be ensured for building contracts’ single tendering. Regular procurement documentation, in particular, reduces the scope for manipulation and prevents corruption at the same time.

The Institute took up the recommendations and revised their internal regulations. Accordingly, it intends to review the measure’s efficiency before awarding the contract in future. Furthermore, it implemented a central guideline which maps the entire process for building maintenance measures and thus supports the responsible entities.

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These steps ensure a consistent and clearer definition of the building contracts’ procurement. Particularly the documentation and control requirements ensure transparency and contribute to an efficient building maintenance.

General Fiscal Administration

72 Adjusted rents for commercial properties

The Institute for Federal Real Estates generally adjusts the rents for commercial rental and lease agreements to the standard market level, thus taking up our recommendation. We found that the rents for several agreements have in part been the same for decades. The additional revenues amount to at least €1.8 million per year.

The Institute for Federal Real Estates (Institute) manages the federal properties. It also lets some 21,000 commercial properties. In line with budgetary regulations, it has to stipulate standard market rents and leases. There should be an adaptation clause in the agreements in case of a changed market situation. The rent is to be reviewed in periodic intervals and adjusted where necessary.

We found that the Institute had not implemented these stipulations in several cases. Either the agreements did not include adaptation clauses or the Institute had not reviewed for years whether the rents had to be adjusted. In some cases, the rental level had been the same for decades.

We demanded that in comparable cases the rental level be reviewed and, if possible, adjusted.

The Institute took up our suggestions. It has reviewed its commercial agreements by now and adjusted the rents wherever permitted by market situation and agreements. Thus, it obtains additional revenues of at least €1.8 million per year.

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General Fiscal Administration

73 VAT tax on exports – plans to reduce the risk of fraud

There is a risk of fraud in the exports’ VAT taxation if goods which are supposed to be exported into a third country actually remain in the European Union. In response to that, the Federal Ministry of Finance approaches in coordination with the states the deficiencies in the exports’ VAT tax control. The objective, in particular, is to improve the data exchange between tax authorities and customs departments.

In 2013, the German economy exported goods for more than €470 billion in countries outside the European Union (third countries). Such exports are exempt from VAT tax if the goods are exported to third countries. Fraud is possible if traders make use of the tax exemptions but just pretend to export the goods into a third country. That is why the tax authorities have to check in cooperation with the customs departments whether the deliveries are really exported into a third country.

We found, however, that there were deficiencies in the export control. In particular, the data exchange between the tax authorities and the customs departments was inadequate, which contributes to an insufficient awareness- raising by the states’ tax authorities as to risk of fraud in case of exports. In our view, frauds could at best be identified coincidentally.

The Federal Ministry of Finance recognised the risk of fraud and admitted that a systematic approach to supervision for exports is so far missing. It responded to our findings by reminding the states of the risk to tax revenue. With their cooperation, the federal government department wants to improve the export control. A possible instrument should especially be an improved automated data matching between customs departments and tax authorities.

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We acknowledge that the Federal Ministry of Finance takes up our recommendations. In cooperation with the states, it plans to remedy the deficiencies. We will monitor whether the tax authorities’ control practices really improve.

General Fiscal Administration

74 Advances in the evaluation of automatic risk management

The Federal Ministry of Finance took up our recommendation to improve the evaluation of automatic risk management in employees’ income tax assessment. It took corrective action in the evaluation or aims at remedying deficiencies. In addition, it intends to exercise its federal supervision more actively than in the past.

The tax authorities process the employees’ tax returns by means of an automated risk management. A programme-controlled risk filter decides whether the income tax is automatically determined or whether tax office staff select cases for review. In order to ensure an equal and legal taxation, risk management needs to be constantly evaluated. For this purpose, the states develop data supposed to give information on the risk management’s effectiveness which are known as standard evaluations.

We found that standard evaluations were based on incomplete and at times inaccurate data, da fact which can be attributed to conceptual inaccuracies and programming errors. Furthermore, the data were not proper for a national evaluation.

The Federal Ministry of Finance did not gather sufficient information on the evaluation by the states and could not appropriately assess the risk management’s effects on the tax enforcement. We believe that the Ministry exercised its federal oversight function only insufficiently.

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We pointed out that the standard evaluations were only partly reliable due to the deficiencies found. This may affect the evaluation results and thus lead to undesirable developments of the risk management. In a number of cases, an equal and legal taxation would not be ensured. We therefore demanded that the standard evaluations be improved. Furthermore, we recommended to the Federal Ministry of Finance to more actively exercise its federal oversight function.

The Federal Ministry of Finance took up our recommendations. Some deficiencies of the standard evaluations have already been remedied, others have been addressed by the federal government department. Moreover, it intends to monitor the risk management’s evaluation more closely. We believe that the initiated or implemented steps can enhance refining automated risk management.

General Fiscal Administration

75 Federal Ministry of Finance revises statutory provisions on penalties payable for obstructing the work of tax inspectors

In response to our audit findings, the Federal Ministry of Finance intends to undertake, in conjunction with the German states, a fundamental revision of the statutory provisions on penalties for obstructing the work of tax inspectors.

One of the circumstances, in which the fiscal administration may impose such a penalty is the failure of taxable persons to appropriately cooperate with tax inspectors in connection with tax audits on their premises. This is to encourage cooperation and to speed up the conduct of such field audits. The underlying legislative intent is to avoid disadvantages for the public exchequer that may be caused by a delayed assessment. Thus, these penalties are to help comply with the budgetary law requirement of timely and complete collection of revenues.

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We found that the tax offices rarely imposed penalties on taxpayers that cooperated inadequately. They did not do so in many cases where such penalties would have been warranted. To justify this, they argued legal uncertainties and the concern that the ‘audit climate’ could deteriorate. Moreover, the tax offices imposed such penalties for purposes for which they were not intended, e.g. to enforce the submission of documents not connected with a field audit.

We expressed considerable doubts as to whether the previous practice of imposing penalties for inadequate cooperation accomplished an improvement of such cooperation in field audits on the part of taxable persons. In our opinion, it is questionable whether the statutory objectives of penalties for inadequate cooperation have been achieved. We therefore recommended that the Federal Ministry of Finance comprehensively evaluate the outcomes of these penalties, looking especially into acceptance and target achievement. In addition, we asked the Ministry to issue a circular clarifying the application of this tool in order to eliminate the uncertainties in the tax offices.

The Federal Ministry of Finance discussed the recommended evaluation with the German states. It was decided to fundamentally revise the legal provisions on penalties for inadequate cooperation. We believe that doing so could provide the basis for a more effective application of this enforcement tool.

General Fiscal Administration

76 Measures taken to secure the tax revenue due from pensioners residing abroad

The Federal Ministry of Finance presses for the more frequent application of tax deduction at source from pensions drawn by beneficiaries residing abroad. Under that procedure, the pension insurance bodies deduct the estimated tax directly from the pension and remit it to the tax office. We had recommended

140 that this method should be applied more often. We consider it as an effective tool for securing tax revenue.

Since 2005, beneficiaries of statutory old-age pensions permanently residing abroad have to pay tax on their pensions in Germany. One tax office has the nation-wide responsibility for all pensioners residing abroad and liable to pay tax in Germany only on their pensions. We found that the pensioners for which this tax office was responsible often did not pay their taxes. The rate of arrears was significantly higher than in similar cases where the pensioners resided in Germany. The main reason for this was that the tax office was largely unable to enforce payment of the tax liability. In Germany, most pensions were exempt from seizure due to their small amount. Tax liabilities of pensioners residing abroad were regularly uncollectible due to the obstacles to obtaining administrative assistance from the state in which they resided.

However, tax deduction at source pursuant to Art. 50a para.7 of the Income Tax Act proved an effective tool for securing the tax revenue. Under that procedure, the pension insurance body has to directly deduct the estimated tax liability from the pension and remit the amount to the tax office. However, the tax office ordered this collection method to be applied only in isolated cases.

We urged the Federal Ministry of Finance to press for the significantly more frequent application of deduction at source. The Ministry took up our recommendation. It intends to speedily develop, in conjunction with the German states, a support software for tax collection at source. The first steps to do so have been taken.

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Part IV Results of international advisory and audit work

77 International cooperation strengthens the external audit function in Greece

European Supreme Audit Institutions including the German SAI accompany the realignment of the Greek SAI. They do so in response to a request of the Greek SAI.

Europe is changing not only through the enlargement of the European Union and the progress of globalisation. The financial crisis also affects the European Union. In response, the Supreme Audit Institutions of the Member States of the European Union and the European Court of Auditors have intensified their long- standing cooperation.

Effective cooperation of the external audit institutions in Europe is important. This is exemplified by a project in Greece. To overcome the financial crisis, Greece endeavours to carry out structural reforms. This endeavour also covers Greece’s external audit function.

In July 2011, the heads of state and government of the euro area countries set up a task force, which is to accompany the efforts of the Greek authorities to implement the structural reforms. In 2012, the Greek SAI asked the Task Force to assist it with its realignment. Some SAIs of the EU Member States – including the German SAI – and the European Court of Auditors declared their willingness to cooperate.

As a result, the Greek SAI and the Greek Parliament now cooperate more closely. Audit results developed by the Greek SAI are discussed in Parliament, thereby increasing transparency. Now, committees of the Greek Parliament regularly invite the SAI to attend their meetings. The Greek SAI is gaining importance in the parliamentary sphere. This strengthens its position and thus that of the external audit function.

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We will also participate in similar projects in the future if we consider them expedient.

78 Successful cooperation with the Supreme Audit Office of the Czech Republic in the audit of public contract awards for construction work and in the field of corruption prevention

The German SAI and its Czech counterpart conducted parallel audits in their respective countries of the compliance with EU procurement law and corruption prevention in connection with contract awards for construction work. Among other findings, the comparison revealed that the time-tested principles applicable in Germany of giving precedence to public invitations to tender and the award of contracts by lots are advantageous. The two SAIs summarised their studies in a joint report, which attracted much interest in the Czech Republic and in the International Organisation of Supreme Audit Institutions (INTOSAI).

In the years 2011-2013, the German SAI and its Czech counterpart carried out parallel audits of public construction projects in their respective countries. The audit findings thus generated showed that both countries had not only implemented the provisions of European law in their national legislation but also complied with them in their building contract awards.

The comparison of the legal bases on corruption prevention and procurement mechanisms prescribed by law showed that, in Germany, the applicable provisions are more comprehensive and more detailed than in the Czech Republic. The Supreme Audit Office of the Czech Republic is generally positive especially concerning the principles time-tested in Germany of giving precedence to public invitations to tender and the award of contracts by lots. However, both SAIs feel that the construction administrations of their respective countries should step up their efforts in the field of corruption evention.

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The Secretary General of the International Organisation of Supreme Audit Institutions (INTOSAI) prized the joint report (cf. www.bundesrechnungshof.de) as a good example of successful bilateral cooperation. He advocated the international dissemination of the report and its communication to INTOSAI’s specialised bodies, e.g. the INTOSAI Working Group on the Fight Against Corruption and Money Laundering.

79 Successful cooperation in the audit of motorway construction with the Supreme Audit Office of the Slovak Republic

The German SAI and its Slovak counterpart coordinated their audits of two motorways. This enabled them to make concordant recommendations to their national road construction administrations. For instance, we had the opportunity to draw the attention of the Federal Ministry of Transport and Digital Infrastructure to the high prices of composite bridges.

The Supreme Audit Office of the Slovak Republic and the German SAI separately audited sections of the motorways D 1 and A 73 according to a predetermined common audit framework. They analysed the data gathered in the respective countries and compared them. Analysis showed that, in Slovakia, road construction was 10 per cent less expensive than in Germany, although the motorways in Slovakia are broader and of more elaborate design. This was attributable mainly to the difference in labour costs. In Germany, the bridges cost even one third more than in Slovakia. Apart from differences in labour costs, a major factor was design. In particular, composite bridges that were only built in Germany are more expensive.

The German SAI and its Slovak counterpart communicated their respective audit findings to the responsible national authorities independently of each other. Furthermore, they concordantly recommended that the national construction administrations • standardise bridge designs and • have composite bridges built only where concrete bridges are not suitable.

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This international comparison of costs will be helpful for the further work of the German and Slovak SAIs. Their cooperation also follows the goal of sharing experience formulated by the European Organisation of Supreme Audit Institutions. In October 2012, they issued a joint report on how they proceeded in this audit exercise.

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Activities and budget of the German SAI

1 The German SAI and its field offices

The German SAI is a supreme federal authority and as an independent institution of government audit is subject only to the law (Art. 1 Sentence 1 Bundesrechnungshof Act). The Members enjoy judicial independence (Art. 114.2 German Constitution). In addition to the German SAI’s President and Vice-President, the heads of the audit divisions and of the audit units are Members of the German SAI.

The two Houses of the German Parliament elect the SAI’s President and Vice- President upon the recommendation of the Federal Government. The President of the Federal Republic appoints those elected. Their term of office is twelve years. Re-election is not permitted. Mr. Kay Scheller was elected the new President of the German SAI by the German Bundestag (Lower House of Parliament) on 22 May 2014 and by the Bundesrat (Upper House of Parliament) on 13 June 2014. The President of the Federal Republic appointed him on 30 June 2014.

The German SAI’s headquarters are located in Bonn and it has a branch office in Potsdam. It consists of nine audit divisions with 49 audit units. Administrative functions are incumbent on the Presidential Division.

Decisions about audit-related issues are taken by boards and panels of Members. Most decisions are made by the cognisant panel of two Members (Head of Audit Division and Head of Audit Section). In certain cases, either the President or the Vice-President joins the panel, making it a panel of three Members. Decisions of the panels of two or three Members require unanimity.

Our supreme decision-making body is the (governing) board which has the exclusive power to decide on cross-divisional or particularly important issues, e.g. the annual report.

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Our work is supplemented and supported by seven field offices located in Berlin, Frankfurt am Main, Hamburg, Hanover, Coblence, Munich and Stuttgart.

The field offices are subject to administrative and technical supervision by the German SAI. They perform their audit work in accordance with the provisions that apply to the German SAI. In relation to the audited entities, their rights to perform audits and to collect audit evidence are the same as those of the German SAI, which bears the constitutional responsibility for the audit results developed by the field offices.

The SAI and the field offices cooperate closely in the planning and implementation of audits. This ensures that the same audit criteria are applied throughout Germany.

The 2014 annual report also includes audit findings developed by the field offices.

2 Audit work

2.1 Audit mandate

The German SAI audits the entire financial management of the Federal Government (especially of the ministries and subordinate federal agencies) including federal off-budget funds and industrial or trading funds. We are also authorised to audit non-departmental public bodies incorporated under federal law and the public bodies responsible for statutory health insurance, social long- term care insurance, statutory accident insurance and statutory pension insurance, provided that these bodies receive grants in aid from the Federal Government or that the Federal Government is obliged by statute law to grant guarantees to these bodies and schemes. It also audits the Federal Employment Agency. Federal financial management is divided into budgetary management, which consists of executing the (annual) Budget Act and budget as well as accounting and drawing up the financial statements, and extra-

147 budgetary financial management, which covers all other financial activities of the Federal Government.

Where bodies or other third parties outside the federal administration are concerned, the SAI is authorised to audit them, especially if they • implement parts of the federal budget (e.g. where Germany’s constituent states perform public management tasks on behalf of the Federal Government) or have expenses reimbursed by the Federal Government (e.g. for the performance by local authorities of certain functions under the scheme for providing basic support for job-seekers), • manage federal funds or assets, • receive federal grants, or • are bodies incorporated under private law, directly or indirectly majority- owned by the Federal Government and/or any of its separate property funds, are not exposed to competition, and if – pursuant to their specified objective – are engaged, entirely or for the most part, in the provision of public services or have been set up for that purpose, and receive for that purpose appropriated federal funds or guarantees from the Federal Government.

In performing such audits, we verify that the recipient bodies use the resources allocated to them in accordance with the specified purposes and the principles of efficiency and effectiveness. To do so, we also conduct field work in state and local government bodies. In the case of grants, we may extend our audit to the financial management of the recipient’s other resources, if we consider this necessary.

When auditing the Federal Government’s management of its shareholdings in businesses incorporated under private law, we take regard to commercial principles.

In our capacity as external audit body, we do not evaluate policy decisions that comply with the law as it stands. Nevertheless, we can audit and report on

148 whether the facts and assumptions on which the policy decision is based are accurate and whether the measures have led to the intended outcomes.

2.2 Audit criteria: performance, regularity and compliance

In our audit work, we apply the criteria of performance, regularity and compliance as set forth in Art 114.2 German Constitution.

Our performance audits look into the ratio between costs and benefits. The focus is on the question whether the audited bodies make efficient and effective use of their staff and other resources. Furthermore, we check whether the audited bodies have analysed the results of their measures and whether these measures actually accomplished the intended objectives. When auditing regularity and compliance, we check as to whether the audited bodies adhere to the standards and principles of good financial management and to the budget.

2.3 Audit focus and audit procedure

The German SAI is independent in the choice of its audit themes and the design of its audit exercises. We focus on specific issues and may limit the audits to samples. Our primary objective is to obtain a sound overview of federal financial management and to avoid gaps in audit coverage as best as possible. Our choice of audit work also takes regard to whether the matters to be audited are of financial importance or risk-prone. Whenever possible, we accede to audit requests of the Parliament and its committees.

By means of a monitoring procedure and follow-up audits, we keep an eye on any remedial action taken or improvements made by the audited bodies in response to our audit findings. We also verify compliance by the audited bodies with the requirements imposed by Parliament. Thus, we provide leadership in convincing audited bodies to implement our audit recommendations and the Parliament’s resolutions.

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We ourselves determine the nature and timing of our audits. We may conduct fieldwork to collect audit evidence. We have the right to be provided with the information we request and the right of access to files, records and data. In 2013, the German SAI and its field offices conducted some 1,300 audits.

2.4 Publication of audit results

As a matter of principle, we communicate the result of our audit to the auditees and discuss it with them. Where important issues are involved, we can also report our audit results to the two Houses of the German Parliament and to the Federal Government. In addition, we may give third parties access to finally determined audit results (Art. 96 para. 4 Federal Budget Code). In such cases, we decide separately about each audit result and seek to avoid any encroachment on public or private interests. Moreover, we may publish our reports addressed to the lower House of Parliament as soon as Parliament has finally deliberated on them. Information from ongoing audit or advisory assignments may never be communicated to third parties. Access to the files kept on our audit and advisory work may not be given. This protects our sensitive internal deliberation and decision-making processes.

3 Advisory work

3.1 Advisory role of the German SAI

On the basis of audit findings, we provide advice especially to Parliament and the Federal Government.

We also make available to the Government and to Parliament our expertise in preparing the budget estimates and advise them on financial developments and high risks in the overall budget and the budget estimates.

Furthermore, we provide advice to the two Houses of Parliament, the Federal Government and the line ministries on fundamental issues, on major government programmes or on other matters. In 2013, we submitted 17

150 advisory reports pursuant to Art. 88.2 Federal Budget Code to the parliamentary Appropriations Committee and the Public Accounts Committee.

We may at any time inform the two Houses of Parliament and the Federal Government of matters of particular importance (Art. 99 sentence 1 German Federal Budget Code).

3.2 Advice provided by the SAI’s President as Federal Performance Commissioner

By tradition, the President of the German SAI holds the ex officio position of Federal Performance Commissioner. His job is to encourage good federal government performance and an adequate organisational and procedural set- up of federal departments and agencies. In performing his functions, the Commissioner mainly relies on the audit findings and experience.

One of the Commissioner’s principal functions is to provide advice to Government and Parliament on the impact legal provisions may have on government performance. For this purpose, federal government departments have to involve the Commissioner at an early stage in drafting Bills, delegated legislation and administrative regulations. If the Commissioner does not concur with the contents of such legislation or regulations, this needs to be pointed out e.g. in the cover letter which accompanies the submission to the Cabinet. Especially when dealing with money Bills, the Lower House of Parliament can rely on the findings available from the Commissioner (Art. 96.6 Standing Orders of the Lower House of Parliament).

In 2013, the executive branch involved the Commissioner in almost 300 legislative and regulatory projects. The Commissioner issued 20 opinions, some of them quite extensive, on these projects. His proposals have been used as input for the legislative or regulatory process to a varying extent.

In addition, the Commissioner published a total of five new expert opinions in 2013 and the first half of 2014. The issues addressed the securing of VAT

151 revenue, investment appraisals in relation to public-private partnerships (PPP) for the construction of federal long-distance roads, efficiency appraisals in general, cost mangement in the construction of federal long-distance roads and the procedures for internal and external staff selection in federal departments and agencies

Furthermore, the Commissioner published five new good practice guides. The purpose of these good practice guides is to make fundamental findings that are significant beyond the isolated cases audited available to public managers. The objective is to provide a condensed overview of ‘typical mistakes’, guidance for avoiding them and, where appropriate, further information (such as opinions of the Commissioner and other available guidance). The collection of good practice guides covers various subject areas (e.g. human resources management, grants and procurement). It is to be expanded continuously. All publications of the Commissioner and the German SAI can be retrieved from our website (www.bundesrechnungshof.de).

3.3 Advisory work pursuant to Art. 103 para. 3 Federal Budget Code

The German SAI has further advisory functions: for instance, being a member of numerous international organisations, Germany is also one of the major contributors of funds to them. Therefore, we are to be consulted before the adoption or amendment of financial regulations of these organisations (Art. 103 para. 3 Federal Budget Code). Where this is the case, we assist the Federal Government in advocating Germany’s interests. In 2013, the German SAI issued about 30 opinions on such matters. For example, we issued an opinion on the proposal for the financial regulations of the 11th European Development Fund (EDF). That Fund grants financial assistance of the European Union to states and territories outside Europe but is not part of the EU budget. As a result, the EU Commission took our suggestions into account in the finalisation of the EDF’s financial regulations.

4 Cooperation with the regional audit institutions (RAIs)

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The financial systems of the Federal Government and the German states are closely linked. Therefore, the audit remits of the German SAI and the RAIs frequently overlap. To make audit work efficient, to prevent duplication and gaps in audit coverage as much as possible, the audit institutions are to cooperate. They do so while maintaining their independence and to respect each others’ remits.

The presidents of the German audit institutions meet at regular intervals (every six months) to discuss issues of common interest in a Conference of Presidents. The objectives of such cooperation are to develop common opinions on overarching issues of government auditing, to coordinate our stances in individual cases, to conclude audit agreements and to share specific lessons learnt. During the respective meetings, the audit institutions regularly discuss trends in public finance. The Conference of Presidents has set up working groups of the audit institutions for the subjects of budgetary law and fundamental issues, taxes, economic affairs and government shareholdings, broadcasting, universities, research institutions and culture, schools, public works, organisation and information technology, social affairs and human resources management. They prepare the decisions of the Conference of Presidents. In its May 2014 meeting, the Conference of Presidents worked out and adopted a joint position paper on the European Public Sector Accounting Standards (EPSAS) planned by the European Commission. In that paper, the German SAI and the German regional audit institutions on the one hand welcome the European Commission’s intent to seek to obtain Europe-wide complete, reliable and comparable budget data. On the other hand, they stress the need to consider all alternative options before deciding about the introduction of binding EPSAS and to evaluate the measures already taken. Furthermore, the German government audit institutions advocate a thorough assessment as to whether the European standards are necessary and effective.

Groups of experts share lessons learnt and Presidents rely on bilateral liaison. To strengthen the professional capacities of their staff, the German audit institutions hold joint training events.

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The audit of EU budget funds in Germany as a Member State is also a key issue in our cooperation with the RAIs. The German audit institutions share information about their EU related audit activities and coordinate their audit work. In July 2010, they set up an EU audit database. It holds data on about 600 audit exercises (380 of which were performed by the German audit institutions) and thus provides an overview of audit work related to the EU – including the work of the European Court of Auditors (ECA) – in Germany. In their joint working group on European issues, the German SAI and regional audit offices discuss the European developments that are relevant for external government audit in Germany. In January 2013, the German SAI and regional audit institutions published the second EU Report of German Audit Institutions. The report informs the Lower House of the German Parliament, the parliaments of the German states, institutions of the European Union and the general public about the financial relations between Germany and the European Union. More than 50 audit results developed by German audit institutions highlight shortcomings in the national administration and control of European Union funds. The report is available in German and English at www.bundesrechnungshof.de.

5 International issues

5.1 Overview

Our international activities take three forms (see figure 1): • We take over international audit mandates.

• We share professional and technical knowledge with the SAIs of other countries, participate in the work of multinational bodies and in the development of international audit standards.

• We pass on our knowledge and experience to SAIs that are in need of support.

Figure 1

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International activities of the German SAI

5.2 Audits with an international focus

5.2.1 Audits jointly carried out with the ECA

The ECA examines the accounts of all receipts and expenditures of the European Union in the EU Member States in liaison with the national audit bodies. Where the ECA and the national audit bodies cooperate, each of them maintains its independence. In 2013, such cooperative audits covered a total budget volume of €150.9 billion. 86.6 per cent of the EU budget funds flow back as grants to the Member States (especially in the form of Structural Funds resources and assistance to agriculture). Cooperation between the ECA and the German SAI takes a wide variety of forms. We coordinate work planning and the sharing of information and lessons learnt between the ECA and the German audit institutions. Moreover, we participate in audits carried out by the ECA in Germany, evaluate the ECA’s audit reports where they come under our remit and forward them to the German regional audit institutions. The latter may also

155 attend ECA audits where the EU funds are managed by the administration of the German state concerned. Furthermore, we inform the ECA about the results of EU-related examinations carried out by the German audit institutions.

5.2.2 Joint audits with other European SAIs

Together with the SAIs of other EU Member States, we carry out coordinated audit work: Based on a common audit framework and coordinated as to timing and contents, the SAIs carry out audits in the Member States. For instance, we are conducting a cooperative audit with the SAIs of Austria and Hungary on Eurofisc, a multilateral early warning mechanism that serves to fight VAT fraud. The German SAI and the SAI of the Czech Republic have conducted parallel audits on the awarding of building contracts (see Part IV, annual report item 78). In cooperation with the SAI of Slovakia, we audited the construction of two sections of motorway (see Part IV, annual report item 79).

5.2.3 Audit of international organisations

The Federal Republic of Germany is a member of a large number of international and supranational organisations and pays contributions to them from the federal budget. The management of members’ contributions is examined by the audit bodies of these organisations. The German SAI is the External Auditor of the Organisation for the Prohibition of Chemical Weapons (OPCW), the Organisation for Security and Cooperation in Europe (OSCE), the European Organisation for the Exploitation of Meteorological Satellites (EUMETSAT), the United Nations Industrial Development Organization (UNIDO) and the World Trade Organization (WTO). Furthermore, we provide auditors for smaller international organisations.

In addition, we have observer status on the Panel of External Auditors of the United Nations. Our audit mandate also covers the exercise of membership rights in such organisations by the cognisant federal government departments in the governing bodies of these organisations.

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5.3 Knowledge-sharing, coordination and participation in the development of international standards

5.3.1 Contact Committee

At the European level, we also cooperate with the SAIs of the other Member States and the ECA in a forum known as Contact Committee, i.e. the annual conference of the Heads of the Supreme Audit Institutions of all EU Member States and of the ECA. The activities of the Contact Committee include e.g. the exchange of professional knowledge, lessons learnt from the audit of EU funds and information on current developments in EU financial management. The Contact Committee has an important role in identifying and dealing with EU issues relevant for external audit. At present, the SAIs discuss e.g. the endeavours of the EU Commission towards the introduction of uniform accounting standards for the Member States (EPSAS) (see item 4 of this section).

5.3.2 INTOSAI

The International Organisation of Supreme Audit Institutions (INTOSAI) 2 encompasses Supreme Audit Institutions of 191 countries – including the German SAI. INTOSAI has set up various working groups who elaborate and publish e.g. technical standards and guidelines on various subjects of external auditing. The International Standards for Supreme Audit Institutions (ISSAI) are recognised as examples of good practice by SAIs all over the world and thus also by the German SAI.3

Our contribution to the work of INTOSAI focuses on the promotion of peer reviews but also on developing a framework for measuring the performance of SAIs and on audits addressing the prevention of corruption. International peer reviews are a method for assessing mission performance of an SAI in accordance with international standards on a voluntary basis. The peers are

2 Further information is available in the Internet under http://www.intosai.org. 3 Further information on the ISSAIs is available on the website http://www.issai.org.

157 colleagues from partner SAIs. Most recently, we conducted a peer review of the European Court of Auditors together with the SAIs of France and Sweden.

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5.3.3 EUROSAI

One of INTOSAI’s seven regional working groups is the European Organization of Supreme Audit Institutions (EUROSAI)4. Within EUROSAI, the sharing of lessons learnt focuses on the entire European area. The EUROSAI has 50 members. Different working groups deal with comprehensive topics such as environmental audit, IT audit and audit for disaster-related aid. The German SAI is chair of the working group which is to promote the application in Europe of the international audit standards developed by INTOSAI. Activities include the EUROSAI working groups on IT audit and on environmental audit.

5.4 Targeted support and training of SAIs

5.4.1 Support to SAIs still in their development stage

We maintain bilateral contacts with a large number of foreign SAIs. We assist SAIs with capacity building. Our experts provide advice and training or organised study visits and seminars.

We also assist SAIs with their capacity building under so-called EU twinning projects. Twinning is a tool of the European Commission to help candidate countries for accession to the EU and European neighbouring countries to adopt important legal and institutional bases of the Community as self-reliantly and completely as possible and to build up modern administrative structures. For this purpose, temporary administrative partnerships are entered into. Since October 2014, the German SAI has been engaged in a twinning project with the SAI of Georgia.

Moreover, we support a project of the EU Commission on the institutional realignment of the Greek SAI. This project is to be concluded by November 2014.

4 Information on EUROSAI is published on the website http://www.eurosai.org. Other regional associations of SAIs comprise SAIs of African, Arab, Asian, Caribbean, Latin American and South Pacific countries.

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5.4.2 Development cooperation

We support the Federal Government’s development cooperation activities in the field of external government auditing. We participate in two comprehensive projects with INTOSAI’s regional organisations in Africa (AFROSAI) and Latin America (OLACEFS) and assist with current projects at the SAIs of Cambodia, Georgia and Tanzania together with GIZ, a company which delivers development projects on behalf of the Federal Government.

6 Budget and staffing (Departmental budget 20)

6.1 Overview

In 2013, the German SAI’s expenditures totalled €127.8 million. As in the preceding years, the expenditure under departmental budget 20 as a proportion of total federal budget expenditure amounted to 0.04 per cent.

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Table 1 Overview of departmental budget 20 German SAI

2013 2013 Deviation 2014 2015 Change target actual target target draft 2014/2015 a figures figures figures / figures budget actual figures a in € million in % Departmental expenditure 132.9 127.8 -5.1 136.0 136.0 0.0 including: • Personnel expenditure b, 112.8 110.7 -2.1 115.7 116.3 0.5 relating to: - active workforce 78.9 75.3 -3.6 79.2 77.7 -2.0 - retirees entitled to 31.2 31.0 -0.2 32.3 33.2 2.9 benefits - Pension Fund, 2.7 4.5 1.8 4.2 5.5 31.2 Pension Reserve c • Rents and operating costs 9.4 8.0 -1.4 9.3 9.5 2.0 for premises • Information technology 4.8 3.4 -1.4 4.7 4.3 -8.5 • Official travel 2.8 2.6 -0.2 2.7 2.7 -0.4 Departmental revenue 0.4 2.0 1.6 0.3 0.0 -95.6 Commitment authorisations 4.3 d 3.2 -1.1 11.4 0.0 -100.0 (established) posts in % Staff 1,338 1,213 e -125 1,314 1,313 -0.1 a Note: Calculated from the initial values; Differences through rounding are possible. b Main group 4 including allocations to the Pension Fund (Title 634 03). c Allocations to the Pension Fund (Title 634 03), remittances to the Pension Reserve (Titles 424 01, 434 57). d Excess and extra-ordinary commitment authorisations included. e Actual staff numbers as of 1 June. Source: Departmental budget 20 for FY 2013: Budget account; for FY 2014: budget; for FY 2015: draft budget.

6.2 Budget structure and development

Given that our audit and advisory work requires a vast input of human resources, personnel expenditure accounts for an extra-ordinarily large share of total expenditures. In 2013, personnel expenditure accounted for 87 per cent (€110.7 million) of total expenditures. Of these, nearly one third was accounted for by retirement benefits and health care benefits paid to entitled retirees (€31 million) and payments to the two off-budget federal entities Federal

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Pension Reserve and Federal Pension Fund (€4.5 million). The rest of our budget funds were used largely for renting and operating office premises (6.3 per cent), information technology (2.5 per cent) and official travel (2 per cent).

Actual expenditure went below the amount budgeted for 2013 by €5.1 million. The major reduction of expenditure was savings of €3.6 million in personnel expenditure for the active workforce. These savings are mainly attributable to the fact that the projected number of new recruitments was not achieved because procedures for filling vacant positions were not yet finalised. Additional expenditure of €1.8 million had to be incurred to make provision for future pension liabilities. It is obligatory to allocate additional amounts of 28- 74 per cent of the pensionable earnings of all civil servants who were employed for the first time by the Federal Government after 31 December 2006. The actual percentage depends on career group the civil servants concerned were in and their age at the time of their being granted civil service status. These remittances (€2.6 million) are to contribute to the medium-term transformation of the previous pay-as-you-go civil service pension scheme into a full funded scheme. Moreover, a pension reserve will be accrued for an anticipated peak of pension payments to be made in the short-term, i.e. from the year 2018. This reserve is funded by deducting 0.2 percentage points from any increase of salaries and retirement pensions (€1.9 million) since 1999.

Our 2014 departmental budget calls for expenditure of €136 million. Compared to the target figures for 2013, this amounts to an increase of €3.1 million. This is attributable mainly to additional personnel expenditure on benefits paid to entitled retirees (€1.1 million) and higher than previously estimated allocations to the Pension Fund and the pension reserve (€1.5 million). Compared to the previous year’s lower actual expenditure, projected IT expenditure in 2014 will be higher (€1.3 million). The major items will be replacement and complementary investments for connecting our field offices to the network. Moreover, we need additional data storage capacities for the increasing volume of its computer-held files.

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At €2 million, our actual revenues in 2013 were significantly higher than budgeted. The major portion of this (€1.2 million) was accounted for by compensation payments for the assumption of pension liabilities in connection with the transfer of civil servants from state or local governments to the Federal Government. Since these revenues serve directly to cover additional expenditure on pensions, they are not budgeted as revenues. In addition, we received reimbursements from international institutions on whose behalf we exercise audit mandates. Revenue from the sub-lease of part of our Potsdam premises have been received for the last time in 2014. The present sub-tenant, the Brandenburg State Court of Auditors, abandoned the premises in February 2014.

6.3 Substantial expenditure items

6.3.1 Staffing and pensions

Of the 1,338 budgeted posts in the German SAI and its field offices, 1,213 were filled as of 1 June 2013, of which 707 were in the German SAI and 506 in the field offices (cf. table 2).

Table 2

(Established) posts of the German SAI and its field offices

2013 2013 Deviation 2014 2015 Change target actual target target draft 2014/2015 a figures figures figures / figures budget actual figures a (Established) posts Number in % a b a a Total 1,338.5 1,213.5 -125.0 1,314.5 1,313.0 -0.1 including: • German SAI 750.5 707.5 -43.0 753.5 756.5 0.4 • Field offices 588.0 506.0 -82.0 561.0 556.5 -0.8 a Note: Including substitute established posts (2013: 4, 2014: 2, 2015: 2). b Actual staffing on 1 June. Source: For the year 2013: budget account; for the year 2014: departmental budget; for the year 2015: draft budget.

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The share of civil servants in the total workforce is about 86 per cent. Most of them are audit staff. They work in all fields in which the Federal Government obtains revenues, incurs expenditures or assumes financial risks. Therefore, the auditors have to meet a wide variety of professional and personal requirements. This is why our staff have a wide range of professional and academic qualifications (e.g. degrees in law, economics and business administration, engineering and computer science).

39 per cent of all staff are women. 35 per cent of the audit staff are women, 52 per cent of the administrative staff are women.

On 31 December 2012, we successfully completed a restructuring that led to the abolition of a total of 210 posts in our field offices.

The budgeted numbers of (established) posts in the field offices will be reduced by 5.4 per cent (31.5 posts) in 2014 and 2015 (cf. table 2). This is mainly due to the after-effects of the organisational reform. A total of 18 posts will be abolished on retirement of the present incumbents.

6.3.2 Management of premises

Expenditure on renting and operating premises amounted to €8 million in 2013, which is an increase by €2.8 million compared to the previous year. For the first time in 2013, the German SAI had to pay for the use of its headquarters premises in Bonn (€2.3 million) and in Potsdam (€1 million) to the Institute for Federal Real Estate.

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6.4 Audit of the German SAI’s account pursuant to Art. 101 Federal Budget Code

As in previous years, the 2013 accounts were audited by a commission of the Public Accounts Committee in accordance with Art. 101 Federal Budget Code. The audit focused on the annual account, on budget execution, on human resource management and on our use of IT.

The two Houses of Parliament granted discharge to the German SAI.

6.5 300 years of external government audit in Germany

In 2014, we celebrate the 300th anniversary of the foundation of the Prussian General Chamber of Accounts. In successive stages, this led to the establishment of the present German SAI in 1950.

We arranged four events to commemorate the development of the external government audit function, to shed light on its role and to call attention to future challenges. For this purpose, €405,000 have been appropriated in our departmental budget. This series of events started with an international IT symposium held in Potsdam in March 2014, which addressed the challenges facing the external audit function by the use of information technologies. In spring 2014, a commemorative volume on the history of external government auditing was issued. On 10 July 2014, an exhibition on the history of external government auditing in Germany was opened in Bonn and will be relocated to our Potsdam branch office where it can be visited during the first half of 2015. The commemorative year was concluded by an official ceremony in Bonn on 18 November 2014.

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6.6 Outlook

The development of departmental budget 20 during the 2014-2018 financial planning period is shown in table 3.

Table 3

Expenditure trends on the departmental budget 20 during the financial planning period

2014 2015 2016 2017 2018 in € million 136.0 136.0 139.6 142.7 145.7 Source: For the year 2014: departmental budget 20; for 2015: draft departmental budget 20; for the years 2016-2018: medium- term financial plan of the Federal Government for the years 2014-2018.

During the financial planning period, total expenditures under our departmental budget will increase to €145.7 million up to 2018. The increase by €9.7 million compared to 2014 is due largely to higher expenditure on the payment of pensions and health care benefits to entitled beneficiaries (€4.5 million) and the annually growing allocations to the Pension Fund (€3.3 million).