Quality assurance procedure
Description of the concept for undertaking quality assurance for published information
The MSG must ensure both the quality of the information of payments by companies to the state published in the report and the quality of information on the corresponding government revenues. This is a key requirement of the EITI standard. In the first two D-EITI reports, MSG relied on both sides’ disclosure of payment flows for quality assurance. This EITI standard procedure makes provision for an Independent Administrator to reconcile individual payments reported by companies with the corresponding receipts by government agencies. These did not produce any or any noteworthy differences between payments made and payments received between companies and government agencies.
The third German EITI report for the 2018 reporting period agreed with the international EITI secretariat started the development of an alternative quality assurance procedure for the payment flows to the government agencies reported by the extractive industry (“Pilot procedure”). The pilot procedure was further developed by the MSG and the IA in the fourth German EITI report for the 2019 reporting period. In the course of this fifth German EITI Report for the 2020 reporting period, the pilot procedure is applied by the MSG and the IA, whereby a more in-depth examination was carried out with regard to the payment flows from trade tax (cf. the explanations given under item b. Section ix.) (1)
In terms of the system, the previous standard procedure represents a test of details of the payment flows reported by the participating companies. Inclusion and assessment of the processes and controls associated with the payment flows are not undertaken, meaning that the knowledge gained from the standard procedure is always limited to the payment flows that are actually examined for the reporting period. The pilot procedure involves replacing the payment reconciliation with a multi-stage system-based approach of obtaining information and the analysis of processes and controls relevant for EITI, in particular on the part of the government agencies in receipt of the payments. The aim is to put the MSG in a position where they can provide a well-founded assessment of whether or not there are sufficient signs of risks to indicate that payment flows to government agencies related to natural resources are not being properly processed during the respective reporting period. Regardless of the result of this risk assessment, a process for making a specific analysis of the companies’ reported payments will then be carried out. Where there are no sufficient indications for possible risks in respect of the correctness of the relevant (payment) processes and controls, the quality assurance closes with an assessment of the plausibility of the reported payments, which is based on analyses of key indicators and further analytical considerations.
Explanation of the nature and extent of the work of the Independent Administrator
The work of the Independent Administrator encompasses the performance of investigative measures as per the International Standard on Related Services (ISRS) 4400, “Engagements to Perform Agreed-Upon Procedures”.
The investigative measures carried out by the Independent Administrator do not constitute a (final) examination or audit review of the payment flows reported by the companies in accordance with the professional standards for auditors accepted in Germany or recognised internationally. Therefore the Independent Administrator did not submit an overall judgement (neither with sufficient nor with limited judicial certainty) in terms of the subject of the investigation measures. The Independent Administrator did not undertake any specific investigations to verify the correctness, completeness and reliability of the payment data, in particular with regard to the data notifications of the participating companies and/or of the government agencies. In addition, the objectives of the investigative measures carried out were neither to uncover errors nor to detect violations on the part of the participating companies or government agencies.
Identification of companies
The first step was to identify the companies that were relevant for the fifth D-EITI report. Here the Independent Administrator used a database analysis (2) to select all the companies which are mainly active in the extractive industry and which are allocated to the lignite, potash/salts, crude oil/natural gas and quarried natural resources sectors. The classification criterion was the allocation of the companies to sub-sections 05 to 08 pursuant to Regulation 1893/2006/ EC of 20 December 2006 (cf. Selection of payment flows). In the second step, these companies were filtered according to the size criteria stipulated by the HGB for “large” companies.
The Independent Administrator manually expanded the group of these provisionally-identified companies by including groups of companies in which a potential “consolidated tax group infection” caused by “active” subsidiaries existed for details see Selection of payment flows). The following aspects are unchanged from the previous D-EITI report and must be addressed:
- Companies the main activities of which are allocated to the storage (e. g. construction and operation of cavern storage facilities for the storage of natural gas) of natural resources underground are not considered, since the extraction of natural resources is not their primary activity, despite their being allocated to sub-sections 05 to 08;
- All the companies identified and allocated to sub-section 07 (ore mining) do not actively engage in extractive mining in Germany and are therefore not considered.
Against the background of the legal requirements (cf. §§ 341 q et seq. HGB) and the resulting interpretation possibilities, a final identification of all the companies obliged to report payments pursuant to HGB is not ensured, even with regard to the fifth D-EITI report. Nevertheless, on the basis of the payment reports for 2020 that have been published in the meantime, it can be stated that the companies identified using the methodology described above are very largely the companies that have actually published a payment report to date.
It is evident that the selection criteria specified by the MSG ensured a prominent level of coverage for the lignite, crude oil and/or natural gas, potash and salts/industrial brine sectors (cf. Payment flows 2018). These are solely free-to-mine natural resources. They contain comparatively few, but relatively large business operations. On the other hand, quarried natural resources are extracted by a very high number of business operations with many extraction facilities and/or mines.
According to estimates by the German Building Materials Association – Quarried Natural Resources (BBS), the 25 largest quarried natural resources suppliers account for only about 1.9% of the total number of companies in the industry. Besides it must be assumed that a number of companies and/or consolidated companies (which are already among the 25 largest providers in this sector) do not fulfil the size criteria in Selection of payment flows and are therefore not identified by the selection criteria screen adopted by the MSG. As a result of the high number of non-identified small and medium-sized enterprises in the quarried natural resources sector, the coverage of this sector clearly lags behind that of the other sectors.
Identification of government agencies
The total number of government bodies that generate revenues from the extractive industry in Germany stem directly from the payment flows that were defined for this fifth D-EITI report. However, due to the federal structure of the administration in Germany, no central recording of the relevant payment flows is possible.
The following individual government agencies are responsible for:
- Corporate tax: the responsible tax offices at the respective headquarters of the companies
- Mining and extraction royalties: the responsible mining authorities of the Federal States in which the approved/licensed site is located
- Trade tax: the municipalities in the territory of which the taxable operating facilities are located
- Lease payments and payments to improve the infrastructure: government agencies at State or municipal level, depending on the type of payment
Managing tax secrecy
The EITI reporting encompasses tax data, viz. payment flows relating to corporate tax and trade tax, which are subject to tax secrecy pursuant to §§ 30 ff. of the German Tax Code (AO) (cf. the comments in Tax secrecy). In the course of the preparation of the EITI report, the payment flows reported by the companies and received by government agencies were prepared and disclosed. This usage of tax-relevant data is only permissible if the taxpayer, i.e. the respective company, expressly agrees (§ 30 (4) No. 3 AO). The data collection templates ensure that this consent is obtained from each company for the purpose of publishing the data in the context of EITI reporting.
Measures for safeguarding confidential data
All project-related communication via email and all other project-related data were stored in an ISO 27001 and ISO 9001-certified data centre in Germany. A platform was specifically made available for the exchange of project-related data, and companies could use this to upload data (several times where required). Uploaded data could not be changed for security reasons. Measures were taken to prevent any company from gaining access to the data of other participants. The administration of the data exchange, storage and e-mail service was the responsibility of the EITI Secretariat in Berlin.
Templates and notes on data collection
In accordance with the decisions made by the MSG regarding the shaping of the contents of the D-EITI reporting process, the Independent Administrator has developed an Excel-based template to collect the relevant data from the companies. In addition to the data collection templates, the Independent Administrator has also created further “Notes on data collection within the framework of the EITI process”. These notes will give companies practical tips and help them to understand and use the data collection templates.
Quality of data provided by companies
Companies in Germany are subject to comprehensive, legally-regulated
- accounting,
- disclosure and
- auditing obligations.
These obligations depend on the company’s size, legal form and activity. Limited companies and limited liability partnerships within the meaning of § 264 a (1) of the HGB must draw up an annual financial statement with notes and (where required) a management report at the end of each fiscal year. The obligation to carry out the annual audit is regulated in particular in the HGB (§§ 316 et seq. HGB). The HGB stipulates a statutory audit obligation (inter alia) for “medium-sized” and/or “large” companies, whereby two of three criteria for grouping into the size classes must be met within a given period of time, pursuant to § 267(2) and (3) HGB).
The statutory audit must at least include the annual accounts (balance sheet, profit and loss account and notes), plus the management report and the accounting records. The auditor must determine whether or not the accounting is consistent with the underlying accounting principles and with any other legal basis such as the Articles of Association or the deed of partnership (compliance/regularity audit). Furthermore, it must also be determined whether the respective financial statements and the associated management report provide an accurate picture of the company’s position as a whole. An assessment of whether or not the opportunities and risks of future development are presented accurately in the management report must also be carried out. The result of the audit is summarised by the auditor in the auditor’s report (see § 322 HGB). In the case of statutory audits, the auditor’s reports must be disclosed with the annual financial statements and the management report in accordance with § 325 HGB through an electronic filing in the Federal Gazette and these are therefore always available to the public (3). The shareholders of a subsidiary can refuse to disclose the annual financial statements of the subsidiary, if the parent company’s consolidated group financial statement which includes the subsidiary concerned is disclosed, the parent company has already agreed to implement obligations entered into by the subsidiary up to the balance sheet date in the following financial year and other prerequisites exist. However, these cases must be made transparent via the electronic Federal Gazette or the enterprise register.
In contrast to the annual financial statements, the (consolidated group) payment reports pursuant to §§ 341 q et seq. HGB, however, are not yet subject to statutory audit obligations. Within the scope of their obligation to report pursuant to § 321 (1) sentence 3 HGB, however, if the auditors establish that a (consolidated group) payment report has neither been prepared nor disclosed in the course of their audit work, despite a statutory obligation for companies to do so, the auditors must include this in their audit report. In contrast to the auditor’s report, the audit report is only available to the bodies of the audited company and not the public.
The legal representatives and those responsible for monitoring corporate activity are generally supported by an Internal Audit team as they carry out their respective duties. Even where there is no explicit statutory obligation in Germany to set up such a process-independent function, the fact that such a function is in place corresponds to the principles of good corporate governance (see the German Government’s Public Corporate Governance Code). This is particularly true for those companies that are a part of large, complex and/or internationally active corporations. At the same time, these organisational structures also increasingly reflect efforts on the part of legal representatives to set up effective compliance management systems that aim to comply with legal regulations but also to observe the ethical rules of the company or corporate group. As a rule, an integral part of these systems is also formed by external contacts contracted by the company or corporate group to whom whistleblowers can report possible breaches of legal regulations or ethical rules.
Quality of data on government revenues
The basis for showing revenues received by government agencies is the corresponding data on the payments by companies for the current year under review.
In the D-EITI reports for the 2016 and 2017 years under review, the corresponding revenues are levied by government agencies and an immediate (payment) reconciliation is made with the payments reported by the companies for which there were no or no noteworthy differences (test of details or case-by-case approach). Building on these findings, in contrast to the original course of action the processes and controls or control mechanisms were analysed for the third, fourth and this current fifth German EITI report. These processes and controls are set up by government agencies to ensure that the respective payment flows are collected properly (debit position) and processed (payment) (system-based approach). The term “correctness” relates to EITI’s objective including,
- that sufficient processes or procedures are in place at the relevant government agency to ensure that the debit position of payments is legally compliant and timely,
- that processes and controls are in place which ensure any differences between the debit position of government agencies and payments by companies can be clarified in a timely way,
- that there are adequate controls at the level of superior government agencies and
- that a check of the controls by independent auditors is ensured.
The entirety of the processes, procedures and controls set up must be viewed as an internal control system used to assist the defined objective of proper collection of the relevant payments. In Germany, this system is based in principle on an interaction between the legal basis (e. g. civil service law, budget legislation, criminal law, administrative regulations), the structure and organisation of the authorities (e. g. via rules of procedure, schedules of responsibilities, establishment of segregation of duties, the dual-control principle) and additional monitoring of processes and controls (e. g. via in-house audit offices and other independent auditors). This system-based approach was continued in this present fifth German EITI report.
The entirety of the processes, procedures and controls set up must be viewed as an internal control system used to assist the defined objective of proper collection of the relevant payments. In Germany, this system is based in principle on an interaction between the legal basis (e. g. civil service law, budget legislation, criminal law, administrative regulations), the structure and organisation of the authorities (e. g. via rules of procedure, schedules of responsibilities, establishment of segregation of duties, the dual-control principle) and additional monitoring of processes and controls (e. g. via in-house audit offices and other independent auditors). This system-based approach was continued in this present fifth German EITI report.
The wider official environment of these government agencies and the relevant statutory framework are necessarily also considered alongside the analysis of processes and controls set up on the part of government agencies. In sub-section cc the structure of the authorities is considered in more detail. A comprehensive description can be found in the brochure “Die Steuerverwaltung in Deutschland” (Tax administration in Germany), 2018 edition (bundesfinanzministerium.de). Annex c also contains schedules showing the organisational structure and the processes and controls relevant for the investigation in respect of the corporate tax and the mine site and extraction royalties.
As before, the Independent Administrator formed a picture of the processes and controls that have been established, which was gained on the basis of documents linked to the MSG, and discussions with MSG representatives and the responsible authorities. These findings mirror, among other sources, the regulations from the framework concept of the Committee of Sponsoring Organisations of the Treadway Commission (COSO) from the United States of America. This framework concept has gained widespread international acceptance. Its basic principles mirror, for instance, the Standards for Internal Control in the Federal Government of the United States Government Accountability Office, meaning that it can therefore also be applied to government agencies. At the same time, this framework concept forms, among other things, the basis for the Audit Standard 261 – “Determination and assessment of error risks and responses of the auditor to the evaluated error risks” issued by the Institute of Independent Auditors in Germany (IDW) that has been routinely applied for statutory audit reviews in Germany in 2020.
According to COSO, the components of an internal control system include the control environment, risk assessments, control activities, information and communication, and monitoring of the internal control system. The IA has applied these components to the relevant payment flows for corporate tax and mine site and extraction royalties.
In addition to this, the knowledge gained from the previous payment reconciliations as part of the first and second D-EITI report has been included in the IA’s analysis and assessment as a case-by-case confirmation of the effectiveness of the processes and controls set up. The system-based approach within the framework of the third, fourth and this fifth German EITI report and the knowledge obtained to date from the payment reconciliations therefore complement each other and together form the basis for the IA’s assessment.
In summary, the IA considers that the concept developed in the scope of the pilot project for testing the system-based approach is well suited to satisfy the requirements of the EITI Standard regarding the reliable disclosure of the payments from the extractive industry. Therefore, it can be considered as an alternative procedure when compared to the original procedure of an extensive reconciliation of all material payment flows during a year under review within the context of tests of details. On the basis of the sources of information available to the IA and the information provided by MSG members, the IA has not found any indications of weaknesses in relevant controls to ensure the correctness of payment flows for
- Mine site and extraction royalties
- Corporate taxes and
- Trade taxes.
The work subsequently carried out by the Independent Administrator to make plausibility checks of the data reports of participating companies has led to the assessment that, on the basis of the pilot procedure, the MSG can close the required quality assurance in accordance with Requirement 4.9 of the EITI standard.
The Independent Administrator’s work to date under the payment reconciliation pilot has been described, among other things, in a comprehensive work report. In terms of content, the focus of the pilot procedure has so far been on the payment flows resulting from corporate tax as well as mine site and extraction royalties.
Quality assurance process for trade tax payments
For this fifth D-EITI report, the trade tax collection process was analysed in more detail using a questionnaire developed by the IA. This questionnaire was sent to the following 20 municipalities that received the highest trade tax payments from D-EITI participating companies for the reporting year 2020. The responses resulting from the questionnaires provide insight into the processes and controls put in place by municipalities of various sizes to ensure the regularity of the collection of trade tax.
Receiving municipality | Trade tax payments in 2020 in thousands of € | Taxpayer company |
1. City of Hanover | 5,162 | ExxonMobil Central Europe Holding GmbH |
BEB Erdgas und Erdöl GmbH & Co. KG | ||
2. Großkneten (municpalty) | 3,649 | BEB Erdgas und Erdöl GmbH & Co. KG |
ExxonMobil Central Europe Holding GmbH | ||
3. Meppen (town) | 3,133 | ExxonMobil Central Europe Holding GmbH |
BEB Erdgas und Erdöl GmbH & Co. KG | ||
4. Frechen (town) | 2,740 | Quarzwerke GmbH |
5. City of Heilbronn | 2,604 | Südwestdeutsche Salzwerke AG |
6. Dötlingen (municpality) | 1,956 | ExxonMobil Central Europe Holding GmbH |
BEB Erdgas und Erdöl GmbH & Co. KG | ||
7. City of Hamburg | 1,449 | ExxonMobil Central Europe Holding GmbH |
8. Rheinberg (town) | 1,030 | Hülskens Holding GmbH & Co. KG |
9. Schöningen (town) | 976 | JTSD-Braunkohlebergbau GmbH |
10. City of Wiesbaden | 954 | Dyckerhoff-Gruppe |
11. Helmstedt (town) | 851 | JTSD-Braunkohlebergbau GmbH |
12. City of Köln | 847 | ExxonMobil Central Europe Holding GmbH |
13. Elsteraue (town) | 847 | JTSD-Braunkohlebergbau GmbH |
14. Brockel / joint municipality of Bothel | 718 | BEB Erdgas und Erdöl GmbH & Co. KG |
ExxonMobil Central Europe Holding GmbH | ||
15. Haltern am See (town) | 662 | Quarzwerke GmbH |
16. Vechta (town) | 596 | ExxonMobil Central Europe Holding GmbH |
BEB Erdgas und Erdöl GmbH & Co. KG | ||
17. Lengerich (town) | 583 | Dyckerhoff-Gruppe |
18. Emstek (municipality) | 519 | BEB Erdgas und Erdöl GmbH & Co. KG |
ExxonMobil Central Europe Holding GmbH | ||
19. Bad Reichenhall | 476 | Südwestdeutsche Salzwerke AG |
20. Osterwald / joint municipality of Neuenhaus | 462 | ExxonMobil Central Europe Holding GmbH |
BEB Erdgas und Erdöl GmbH & Co. KG |
Regarding trade tax payments, one has to bear in mind that the previous trade tax assessment process is very largely the responsibility of tax offices and thus findings from analysing corporate tax payment flows can be transferred to the assessment of trade tax. The decision on the level of trade tax instigated by the tax office is the base decision for the subsequent calculation of the actual level of trade tax by the respective municipality. The municipalities calculate the amount of trade tax owed by applying an individual tax factor to the decision on the level of trade tax. The level of trade tax can therefore vary from municipality to municipality depending on the level of the tax factor that the elected representatives in the respective towns and communities have decided in the parliamentary procedure. An overview of the trade tax rates of German towns and municipalities for the 2020 reporting year can be found in places such as the DIHK website.
The respective municipality is routinely responsible for collecting all the trade tax. The basis of this is the fundamental protected right of municipal self-government that applies to well over 10,000 municipalities in Germany.
- Municipal council
- Audit committee
- Audit office
- Suitable members of staff appointed by themunicipality as auditors
- Other municipal auditors
The following overview shows the number of municipalities that received trade taxes in the reporting year 2020 from the companies participating in D-EITI.
Company | Number of municipalities receiving trade trax payments |
BEB Erdgas und Erdöl GmbH & Co. KG | 23 |
Dyckerhoff-Gruppe | 6 |
ExxonMobil Central Europe Holding GmbH | 28 |
Heidelberger Sand und Kies GmbH | 1 |
Holcim (Deutschland) GmbH | 2 |
Hülskens Holding GmbH & Co. KG | 3 |
JTSD-Braunkohlebergbau GmbH/ MIBRAG | 9 |
Quarzwerke GmbH | 5 |
Sibelco Deutschland GmbH | *) |
Südwestdeutsche Salzwerke AG | 4 |
Wacker Chemie AG | 1 |
The overview also shows for the group of companies that take part in D-EITI the 20 government agencies to which the highest trade tax payments in the aggregate were made in the year under review (2020):
Leistendes Unternehmen | Empfangende Kommune | Gewerbesteuerzahlungen in 2020 in (TEUR) |
ExxonMobil Central Europe Holding GmbH | Stadt Hannover | 3.671 |
Gemeinde Großkneten | 1.768 | |
Stadt Meppen | 3.010 | |
Gemeinde Dötlingen | 998 | |
Stadt Hamburg | 1.449 | |
Stadt Köln | 847 | |
Brockel/ Samtgemeinde Bothel | 288 | |
Stadt Vechta | 432 | |
Gemeinde Emstek | 176 | |
Osterwald/ Samtgem. Neuenhaus | 296 | |
BEB Erdgas und Erdöl GmbH & Co. KG | Stadt Hannover | 1.491 |
Gemeinde Großkneten | 1.881 | |
Stadt Meppen | 123 | |
Gemeinde Dötlingen | 958 | |
Brockel/ Samtgemeinde Bothel | 430 | |
Stadt Vechta | 164 | |
Gemeinde Emstek | 342 | |
Osterwald/ Samtgem. Neuenhaus | 166 | |
Quarzwerke GmbH | Stadt Frechen | 2.740 |
Stadt Haltern am See | 662 | |
Südwestdeutsche Salzwerke AG | Stadt Heilbronn | 2.604 |
Bad Reichenhall | 476 | |
Hülskens Holding GmbH & Co. KG | Stadt Rheinberg | 1.030 |
JTSD-Braunkohlebergbau GmbH | Stadt Schöningen | 976 |
Stadt Helmstedt | 851 | |
Stadt Elsteraue | 792 | |
Dyckerhoff GmbH | Stadt Wießbaden | 954 |
Stadt Lengerich | 583 |
The overview also shows for the group of companies that take part in D-EITI the 20 government agencies to which the highest trade tax payments in the aggregate were made in the year under review (2020):
Responsible supra-local audit office | Receiving municipality |
President, State Audit Office for Lower Saxony | City of Hanover |
Großkneten (municipality) | |
Dötlingen municipality) | |
Schöningen (town) | |
Helmstedt (town) | |
Brockel/ joint municipality of Brothel | |
Vechte (town) | |
Emstek (municipality) | |
Osterwald/ joint municipality of Neuenhaus | |
Meppen (town) | |
NRW municipal audit office | Town of Frechen |
Rheinberg (town) | |
City of Cologne | |
Haltern am See (town) | |
Lengerich (town) | |
Baden-Wuerttemberg municipal audit office | City of Heilbronn |
Audit Office of the Free Hanseatic City of Hamburg | City of Hamburg |
President of the Hessian audit office | City of Wießbaden |
State Audit Office of Saxony-Anhalt | Elsteraue (town) |
Audit Office at the Berchtesgadener Land District Office | Bad Reichenhall |
Control environment
According to COSO, the control environment always covers the attitude, awareness and measures of the persons responsible for monitoring and the persons with managerial functions with respect to the internal control system and its significance within the corresponding government agency. The control environment shapes the basic attitude of an organisation by influencing how aware employees are of controls – understood to be the voluntary commitment to integrity and actions according to ethical values.
The control environment of the government agencies relevant here is equally characterised by a strict hierarchical structure that is set for the financial authorities by the Tax Administration Act (FVG). How the mining authorities are organised is the responsibility of the respective Federal State; the Federal Mining Act (BBerG) does not contain any detailed provisions for this.
The respective organisational structure is clearly governed through rules of procedure (e. g. the rules of procedure for tax offices, see the link in the footnote), schedules of responsibilities, job descriptions and administrative instructions within the relevant government agencies. Whereas the responsibilities of the job holder concerned within the assigned administrative processes result from the internal administrative job descriptions or schedules of responsibilities, the supervision obligations and authority to give instructions of the respective line managers are derived from the rules of procedure and administrative instructions. Within the administrative organisation special attention is paid to strict compliance with the principle of dual control as part of administrative processes, on the one hand, and the organisational segregation of assessment and collection processes, on the other, i.e. the enforcement of payment claims by the relevant government agencies and the receipt of payments due from the parties liable to pay.
Besides this, the control environment of the relevant government agencies is largely shaped by German civil service law (4) and parliamentary budgetary law and the associated control processes.
German civil service law is a separate field of law, which governs the particular rights and obligations of civil servants. On the one hand, civil servants have an obligation to be neutral when carrying out their work, they are banned from striking and they are required to uphold the constitution: on the other, they have the right to life-long employment with appropriate pay and retirement benefits. Furthermore, the general principle applies within the relevant government agencies that the criteria according to which civil servants selected to fill vacant positions are exclusively based on their suitability, expertise and professional performance. Civil servants have obligations such as a duty of loyalty, a duty of obedience and a service obligation that arises from these civil service principles.
Because of their special legal status civil servants have an obligation to act with integrity, in particular with regard to adherence to and/or implementation of legal regulations, and to act in a way that observes values derived from civil service law, including the requirement to uphold the law and the constitution. This also includes explicit release from any other existing obligation to maintain secrecy in accordance with § 37 (2) sentence 1 No. 3 of the German Civil Service Status Act (BeamtStG), if a civil servant reports a suspicion of a corruption offence backed up by facts to the highest administrative authority in accordance with §§ 331 to 337 of the German Penal Code.
Furthermore, the relevant control environment is largely shaped by the current budgetary law and the associated primacy of parliament. Parliament passes a resolution on the budget law and so the budget in question is approved and thus gains its democratic legitimacy. At the same time, the executive is empowered via the budget law and is also under an obligation to implement the budget thus legitimised in the relevant budget year. Depending on the significance of the revenues for the (State) budget, the payment flows relevant for D-EITI are also shown separately in the budget planning and or the budget law. After the end of the budget year, the executive accounts to parliament for the “budget submission”. The budget submission is also subject to control by the relevant audit office, which reports to parliament on the results of its audit.
In Germany a series of further regulations over and above the stated regulations exist and these ensure the integrity of the actions of public authorities. In respect of corruption prevention, particular reference is made to the Directive on corruption prevention in the Federal administration, which contains important measures for a prevention strategy such as
- Identification of areas of work at particular risk of corruption,
- the cross-check principle and
- the creation of a contact person
and a Code of Conduct for employees and guidelines for managers and the management of authorities. The purpose of the additional recommendations on corruption prevention in the Federal administration is to help to implement these guidelines. Various legal and administrative regulations exist at Federal State level to prevent unlawful and unfair effects on administrative actions (cf. in NRW, for example, see the Anti-corruption Act of 16 December 2004).
Risk assessments
The risk assessment process means the identification and assessment of risks in respect of meeting targets for the respective processes. At the level of the relevant government agencies, a distinction must be made between risks in the assessment process and risks in the collection process.
Assessment process
The mine site and extraction royalties are based on self-assessment by those who have an obligation to pay, in other words the units mining the resource and/or the respective levy payers. The provisions in the relevant statutory arrangements are that the party with an obligation to pay first calculates the amount due to be paid and informs the government agency of this.
It is possible that the parties due to make the payment may make mistakes in the self-assessment procedure. This can range from a clerical or input error when entering the data in the self-assessment form or unintended incorrect interpretation of the relevant legal rules to a deliberate failure to observe the legal regulations. Accordingly, all relevant government agencies have extensive auditing rights to carry out inspections to ascertain whether the information provided by the taxpayers is correct and complete.
In contrast, there is no self-assessment in relation to income taxes (corporate tax/trade tax). The companies liable to pay tax have a statutory obligation to file income tax declarations that must be submitted every year because of period taxation. The information provided is then checked by the tax authorities responsible for the area and the nature of the tax. Once the authorities have approved the income tax declarations submitted, income tax assessment notices and thus the amount to be paid are sent to the companies. It is possible that, at a later point in time, the tax declarations may be audited as part of company audits.
The result of the assessment process forms the basis for the collection process, i.e. the actual payment flow, which was assessed in the original quality assurance procedure (payment reconciliation) as part of a test of details. However, the requirements of the EITI Standard do not extend to the assessment process.
Collection process
A distinction must be made between the risks in the assessment process and risks in connection with the collection of payments, in other words, in the collection process. These could be produced, for instance, from collected expertise of staff who played an integral part in both the assessment and assessment process. The risk is dealt with both organisationally by strict segregation of functions within the relevant government agency between the party responsible for the assessment and the party responsible for collection and also the fact that the party liable to pay can settle what they owe with a cashless payment, i.e. via transfer: it is not possible to make a cash payment. The segregation of duties ensures that
- the civil servants who undertake the assessment do not have access to the relevant government agency’s (bank) accounts to which the taxpayers make the calculated and estimated payment via bank transfer and
- that no one person handles the case in its entirety.
Dealing with deviations between the payment due and the payment received
Any differences between the estimated payment due (target position) and the actual payment received (actual receipt) are clarified by the relevant collection office.
If payments of corporation tax are too low, automatic reminders are sent in accordance with the statutory regulations or these payments are recovered by the enforcement office (as a special part of the collection office) within the framework of current legal regulations. If payments are too high, they are initially held safely (suspense account) and offset against any possible other open positions owed by the taxpayer from other kinds of tax or other periods. If any difference remains after this, the taxpayer is reimbursed.
Comparable processes are established for the mine site and extraction royalties in the collection process. No automated reminders are sent here because the number of companies that pay royalties is considerably smaller. Instead, reminders are handled by administrators on a case-by-case basis. For trade tax, the concrete design of the processes depends on the respective municipality, whereby the number of employees working in the processes varies with the size of the respective municipality. Basically, the responsibility for clarifying any discrepancies between payments owed and payments received lies with the competent cash offices or the tax offices.
Information and communication
The “Information and communication” component of an internal control system relates to procedures and measures that the relevant government agency uses to generate or obtain the relevant (payment) information in a suitable and timely form, prepare it and forward it to the relevant offices in the internal organisation. These procedures and measures are shown below, both for the assessment process and for the collection process.
Corporate tax
Corporate tax declarations are regularly sent by means of a program interface to the tax determination office that is responsible for the area of business. Responsibility of the tax determination office is guided according to the district where the company management and/or the company headquarters are located.
The organisation of the tax office as a whole and the rights and obligations of the individual work areas are defined by the identical ordinances of the highest tax authorities in the countries for rules of procedure for the tax offices (called FAGO). FAGO governs the principles or organisation at tax offices following the Tax Administration Act (FVG) and can be accessed by interested members of the public.
In the majority of cases, the administrators in the assessment office are not only responsible for checking the information in the corporate tax declaration but also for the definitive signature on corporate tax assessment notices. In the case of companies which are either larger than a certain size in terms of the business (e. g. annual sales, annual profits) or are classified by the system or manually as legally complex cases, the definitive corporate tax notice is signed by the responsible senior tax inspectors for the assessment office or a quality assurance department based in the same tax determination office. The corporation tax notice is approved electronically. Where a reservation regarding signature exists, the administrators cannot on their own approve the case electronically. Approval is routinely granted by the senior tax inspectors.
In order to ensure that the taxes are correctly deducted and paid over, companies can be subject to a government tax audit in addition to the check of the corporate tax declaration. A team that is segregated from the assessment office in terms of personnel and organisation is responsible for such government tax audits, which are conducted on site on the premises of the company involved in each case. Depending on the size of the business, the reason why a company is selected for a government tax audit is random, based on an event because of a suggestion by the assessment office or seamless (called a follow-on audit).
Taxpayers are grouped in four different size classes for the purposes of government tax audits. The 17 companies or consolidated companies participating as part of the fifth German EITI report are all classed as “large enterprises” and thus are assigned to the highest size class. Companies of this size are always audited seamlessly so that the period of time being audited follows on from the previous audit period, thus achieving a continuous audit of all assessment periods.
As a result, the office that carries out the government tax audits is “an extension” of the assessment unit for auditing the companies on site. The involvement of auditors and their senior inspectors (who are not the same as the senior inspectors in the assessment office) illustrates the cross-check principle in respect of the tax fixing procedure.
As soon as a corporate tax notice has been approved by the assessment office, the payment due or the claim for reimbursement, as appropriate, arising from the corporate tax notice is officially set in the responsible collection department to a target via electronic data processing. The collection department is not included in the overall process until this has been issued. As a consequence of the centralisation of revenue offices, the assessment office and the payment unit are now often not only separated within a tax office but the payment unit is relocated to payment processing offices. Depending on whether the financial administration at Federal State level has a two or three level structure, these can either be assigned to the regional tax directorate or to the State’s Ministry of Finance. This means that the administrators from the two units generally do not know each other well.
Trade tax
As already mentioned, the assessment of trade tax is predominantly the responsibility of the tax offices. This means that the findings from the analysis of the corporate income tax payment flow can be transferred to the assessment of trade tax. With regard to trade tax, the municipalities are entitled to participate in external audits conducted by the tax authorities of the Federal State through municipal employees. This right to participate does not represent an outward claim directed against the taxpayer, but is rather to be understood as an internal authority in the relationship of the municipality to the tax administration of the Federal State. If the municipality wishes to claim the right of participation granted to it (and which is part of its constitutionally protected right of self-government pursuant to Article 28 (2) of the Basic Law), it can assert this right against the tax administration.
Mine site and extraction royalties
The calculation, fixing and collection of mine site and extraction royalties are always in accordance with the Federal Mining Act (BBergG) and the Extraction Royalties Ordinance of the Federal States concerned (cf. Revenues generated) in conjunction with the relevant regulations in the German Tax Code (AO). Where mining licenses date back to the time before the current Federal Mining Act came into force in 1982 (“old rights”), no mine site and extraction royalties apply (cf. the explanations in Approval of mining projects).
In Germany, the State Office for Mining, Energy and Geology (LBEG) with its main office in Hanover is responsible for by far the highest proportion of income from mine site and extraction royalties (approx. 96% for the 2020 year under review) and has therefore been involved in analysing the processes and controls. LBEG is supervised by the Lower Saxony Ministry of Economic Affairs, Employment, Transport and Digitalisation.
Even seen against the background of the manageable number of companies that pay the royalties (5) and the self-assessment procedure, the competent sections at the LBEG for fixing the mine site and extraction royalties cannot be compared with the situation in a tax determination in terms of the available personnel and its organisational structure. At the present time, in LBEG there are one full-time administrator, one part-time administrator, two external auditors and one section leader responsible for fixing the mine site and extraction royalties in the Federal States of Lower Saxony, Schleswig-Holstein, Hamburg and Bremen.
Nevertheless, in a similar way as for corporate tax, the organisational precautions taken ensure strict segregation between the administrative function (assessment/setting the target) and processing payments. The Chief Cashier’s Office of the State of Lower Saxony, as an organisational unit of the Lower Saxony Ministry of Finance, is responsible for the technical side of the processing of payment flows, using the budget implementation system as an integral part of the budget management system, The Chief Cashier’s Office of the Federal State is not responsible for clarifying the facts in relation to mine site and extraction royalties and is not involved in this.
The companies that owe the royalties record the data required for the extraction royalties via self-assessment using a web client system (VAS = Veranlagungssystem Feldes- und Förderabgabe/Assessment system for mine site and extraction royalties). All master data relating to the accounts are managed for each company in the VAS system (e. g. information on tax advantages) and the amount of extraction royalties to be paid is calculated by the system from the information provided by the companies. VAS is not used for the mine site royalties but instead the amount is fixed using LBEG’s electronic records system. The administrator role (at the Clausthal-Zellerfeld office has the technical responsibility for the correctness and completeness in respect of fixing the mine site and extraction royalties (“target position”). The cross-check principle is safeguarded as the section leader co-signs any decision. The administrator role issues the royalty notices to companies and creates the cash desk instructions that are transferred via the electronic records system to the main office in Hanover for checking and approval.
Once checking and approval are complete, the cash desk instructions are posted in the budget implementation system and differences between payments received and the target positions are clarified.
In line with the nature of self-assessment, a central element of the process of fixing the royalties by the LBEG is the examination of the royalties paid by the company through external audits. According to information received, because of the situation with personnel the external audit is not seamless but is carried out by establishing audit priorities.
Monitoring the internal control systems of relevant government agencies
The monitoring of controls by the (administrative) unit is understood to mean the organisational and process-driven measures that are used to assess the effectiveness of the internal control system over time. It must be ensured that the controls are in place at all times and are actually implemented. Implementation of the monitoring function for both the corporate tax and the mine site/extraction royalties is ensured by methods such as the internal audit units. For trade tax, this monitoring function is implemented through the local audit processes.
The Internal Audit’s planning for audits is based on a systematic and targeted approach for determining risk factors where the scope of possible negative effects of administrative actions and the likelihood that they occur may play a role. The results of internal audits are intended for the audited department itself and the relevant managers. According to the current legal position, the Freedom of Information Act always applies to official information in documents within the internal audits carried out for national and Federal State authorities, assuming the Federal States have adopted the appropriate regulations in the Federal Government’s Freedom of Information Act. Access to information can be limited in an individual case, as the advisory role of the internal auditors, in particular, could be disrupted by the publication of the audit report, when the internal auditors can no longer entirely fulfil their role as contacts for employees working in public authorities, if there is a threat that of subsequent publication of information.
Corporate tax
According to information provided, the regional tax directorate or the State Finance Ministries carry out controls for corporate tax in the form of business audits on an annual basis. These audits relate to both the areas of fixing and collection. As part of these controls, cases are selected for auditing and these are then audited to ensure that they have been processed correctly.
In addition, a separate “Internal Audit” unit is set up as a rule at the level of the State Finance Ministries and this unit is reports directly to the management of the authority. The work undertaken by the Internal Audit unit is based on the recommendations on standards for Internal Audits in the administration of the Federal State of Hesse (“Empfehlungen über Standards für Interne Revisionen in der Hessischen Landesverwaltung”), e. g. in the Federal State of Hesse. These standards form a uniform and cross-departmental work and legal basis for the work of the internal audit departments. They are based on the auditing standards of the German Institute of Internal Auditing (Deutsches Institut für Interne Revision e.V., DIIR) and the recommendations of the German Federal Ministry of the Interior for Internal Audits (“Empfehlungen des Bundesministeriums des Innern für Interne Revisionen”). The Internal Audit undertakes independent auditing and control functions by examining the administrative actions for discrepancies and irregularities. It also makes suggestions on how to rectify these as well as how to avoid these in the future and assists the efficiency and effectiveness of administrative actions.
The Internal Audit unit produces an audit report on their work. A copy of this report is always submitted to the management the authority in change of the organisational unit that has been audited for approval. The audited organisational unit is given a copy of this report. The Internal Audit unit submits a written report on their activities to the management of their authority at least once a year. The reports on audits issued in the course of the year are not affected by this.
§ 19 of the Tax Administration Act (FVG) states that the Federal Ministry of Finance can take part in the external tax audits of the Federal States’ tax authorities via the Federal Central Tax Office (Federal Tax Inspection). In this way the Federal Ministry of Finance is made aware of matters such as tax developments that may be significant for legislative measures or administrative regulations.
Mine site and extraction royalties
The processes in the field of collecting the mine site and extraction royalties are monitored via the Internal Audit at the level of the State of Lower Saxony’s Ministry of Finance. The Internal Audit is responsible for tasks such as monitoring the procedures and controls within the Chief Cashier’s Office of Lower Saxony as the office that processes the mine site and extraction royalties.
In addition, control activities that relate to current budget management at the level of the respective State budgets are significant. The corresponding receipts are, for example, in the State of Lower Saxony, allocated to the corresponding budget item within the budget implementation system and allow the administrative unit responsible for the budget to reconcile the receipts planned in the budget with the amounts actually received. As is appropriate for the significance of the mine site and extraction royalties for the respective budgets, a comparison can be made between the planned receipts from mine site and extraction royalties and the subsequent actual amounts even across periods. Ultimately, this allows interested members of the public to undertake a control function via the usual processes for political participation. After the IA’s collection, the mine site and extraction royalties are currently shown separately in the budget plans of the Federal States of Lower Saxony, Schleswig-Holstein, Rhineland Palatinate and Bavaria and can be accessed by members of the public who are interested in this subject.
Monitoring controls by independent auditors
The administrative units relevant for the D-EITI are subject to auditing by municipal audit offices (e. g. NRW municipal audit office), Federal State audit offices or the Federal Audit Office (hereinafter referred to as audit offices).
Due to the Federal State structure in Germany, there are independent, state-owned audit offices to control the budgetary economy at both Federal and Federal State levels. The jurisdiction of the Federal Audit Office is restricted to the sphere of the Federal Government’s financial practices (6); it has no legal supervisory rights or right of direction over the States’ audit offices. The audit offices are independent, supreme authorities at the Federal and the Federal State levels. Their tasks, position and powers are derived from the Basic Law (Article 114 GG) or the constitutions of the Federal State, which are defined in detail by Federal and Federal State budgetary regulations.
Financial control at the level of the Federal Government and States through the institutional guarantee of the audit offices has its equivalent at municipal level in the form of a two-stage control system made up of local and supra-local auditing. Those auditing accounts locally monitor the financial practices of the administrations managed by mayors. The local audit is carried out by the municipality’s own body as a form of in-house control of their own performance so that certain dependencies necessarily exist in the context of regulations governing public services because of the organisational integration of the respective body in the local authorities. Local auditing of accounts is based on regulations in the local byelaws and the tasks are performed by persons/offices who vary in different cases, depending on the relevant municipal regulations (see, as an example, Sections 102-104 of the NRW local byelaws).
Supra-local auditing of accounts is carried out by a state or association-based audit office and in relation to the municipalities to be audited is an independent, supra-municipal state external audit. Implementation lies with its own municipal audit offices (e.g. NRW’s municipal audit office) or the Audit Offices of the Federal States or the offices for auditing accounts at district level.
The following principles apply as a standard of review for the auditing of state and municipal budgetary and economic administration:
- the regularity of the execution of the law and administrative action, as well as
- economic efficiency and economical practices in budgetary and economic administration
The principle of regularity includes (inter alia) the accounting correctness (proper and legal calculation, justification and booking) of the individual invoice amounts. The respective audit office is solely responsible for the content, scope and frequency of the auditing procedures.
The results of the audit offices’ work are made known to the relevant government agencies in the form of audit reports. The audit office may communicate the audit result to agencies other than those reviewed if it considers this action necessary for particular reasons. Selected audit results are nevertheless summarised in annual reports that are accessible to the public. (7) The IA did not ascertain any specific comments on the payment flows in question during the investigation period when inspecting the publicly accessible reports of the Federal Audit Office and the State audit offices in Hesse and Lower Saxony as well as in individual supra-local audit offices for the 2020 reporting period.
The German accounting offices support the implementation of International Standards of Supreme Audit Institutions (ISSAIs) developed by the International Federation of Supreme Audit Institutions (INTOSAI).
Since 1 July 2016, the President of the Federal Audit Office has been a member of the Council of Auditors of the United Nations and will remain so for six years. (8) In this function, the President of the Federal Audit Office is responsible for the auditing of nine international organisations. (9) All audits are performed in accordance with INTOSAI standards. (10)
Also the audit offices of the individual Federal States are involved in international exchange and discuss current standards and applied audit methods regularly in the context of the European Organisation of Supreme Audit Institutions (EURORAI). The maintenance of high auditing standards at both national and sub-national level can therefore be regarded as given.
(1) You can find the work report of the Independent Administrator here.
(2) Orbis Europe database of the provider Bureau van Dijk. URL: https://bvdinfo.com/en-gb/ [Accessed on 19 April 2023].
(3) The financial statements of all companies participating in the report are available on the portal of the Federal Gazette.
(4) Federal Audit Office. URL: https://www.bundesrechnungshof.de/DE/5_ueber_uns/2_was_wir_tun/was_wir_tun_node.html [Accessed 19. April 2023].
(5) The 2020 BVEG annual report contains an overview of the oil and gas companies that pay royalties in Lower Saxony, Hamburg and Schleswig-Holstein. https://www.bveg.de/Der-BVEG/Publikationen/Jahresberichte [Accessed on 23 February 2023].
(6) Federal Audit Office. URL: https://www.bundesrechnungshof.de/DE/5_ueber_uns/2_was_wir_tun/was_wir_tun_node.html [Accessed 19 April 2023].
(7) Federal Audit Office. URL: https://www.bundesrechnungshof.de/SiteGlobals/Forms/Suche/Berichtssuche/Berichtssuche_Formular.html [Accessed 19 April 2023].
(8) Federal Audit Office. URL: https://www.bundesrechnungshof.de/SharedDocs/Kurzmeldungen/DE/-2022-Kurzmeldungen/09_2022_unboa.html [Accessed 19 April 2023].
(9) Federal Audit Office. URL: https://www.bundesrechnungshof.de/SiteGlobals/Forms/Suche/Berichtssuche/Berichtssuche_Formular.html [Accessed 19 April 2023].
(10) United Nations. URL: http://www.un.org/en/auditors/panel/ [Accessed 19 April].
