Quality assurance procedure

Description of the quality assurance concept

The MSG must ensure both the quality of the information on payments made by companies to the government agencies and the quality of the information on the corresponding revenues of the government agencies. This is a key requirement of the EITI Standard. In the first two D-EITI reports, the MSG relied on information provided by both the extractive companies and the government agencies to make sure that the information disclosed is complete and correct. This so-called EITI standard procedure further provides for an individual reconciliation by an Independent Administrator of the payments reported by the companies with the corresponding revenues reported by the government agencies.

For this report, the MSG has adopted an alternative approach to quality assurance which is based on the EITI Standard and has been agreed with the EITI International Secretariat.1 The new approach is based on an analysis carried out by the Independent Administrator of the processes and controls used in particu- lar by the relevant government agencies to ensure the quality of the assessment and collection (i.e., the receipt of payments) of the payment flows relevant to D-EITI. The entirety of established processes and controls is deemed to be an internal control system used to support proper assessment and collection of the respective payments.

Nature and scope of the Independent Administrator’s work

The Independent Administrator’s work was investigative in nature according to the International Standard on Related Services (ISRS) 4400, Engagements to Perform Agreed-upon Procedures.

The investigative procedures performed by the Independent Administrator do not constitute an audit or review of the payment flows reported by the companies in accordance with professional standards recognised in Germany or internationally. Therefore, the Independent Administrator does not express an overall judgement (neither with reasonable nor with limited certainty) in relation to the reported payment flows. The Independent Administrator has not carried out any investigative actions of its own to verify the accuracy, completeness, and reliability of the payment data, including those reported by the participating companies or government agencies. Furthermore, the investigative actions were not aimed at uncovering errors or violations on the part of the participating companies or government agencies.

Identification of the companies

To identify the companies relevant for the third D-EITI report, the Independent Administrator first used a database analysis2 to select all companies whose principal extractive activity is assigned to the lignite, potash/salt, oil/natural gas, and quarried natural resources subsectors. The classification criterion here was the allocation of the companies to Divisions 05 to 08 in accordance with Regulation 1893/2006/ EC of 20 December 2006 (cf. Selection of payment flows). In a second step, these companies were filtered according to the size criteria specified by the HGB for “large” companies.

This provisional group of identified companies was manually completed by the Independent Administrator to include corporate groups for which a so-called corporate infection by “active” subsidiaries could be considered (for details see Selection of payment flows). As in the first and second D-EITI reports, the following aspects must be considered:

  • companies whose activities focus on the storage (e.g., construction and operation of cavern storage facilities for the storage of natural gas) of natural resources underground are not considered although they are assigned to Divisions 05 to 08, because their focus is not on the extraction of natural resources;
  • All companies initially recorded in Division 07 (Mining of metal ores) do not actively mine natural resources in Germany and are therefore not considered

Due to the legal requirements (cf. §§ 341 q et seq. HGB) and the resulting interpretation options, it is not possible to make sure that all companies required to report payments under HGB are identified and included in this third D-EITI report. Nevertheless, based on the payment reports for 2018 that have been published in the meantime, it can be said that the companies identified using the methodology described above correspond quite predominantly to the companies that have published a payment report to date.

The selection criteria defined by the MSG achieved a high level of coverage for the lignite, oil and natural gas, potash, and salts/industrial brine sectors (cf. Payment flows 2018). These natural resources are exclusively free-to-mine, and these sectors contain comparatively few but relatively large corporate entities. In contrast, the quarried natural resources sector is characterised by an extremely high number of corporate units with many plants or extraction sites.

The Federal Association of Building Materials – Stone and Earth (Bundesverband Baustoffe – Steine und Erden e. V., bbs) estimates that, due to the small-scale nature of the sector, the 25 largest suppliers of quarried natural resources only account for about 1.6% of the total number of companies in the sector and about 22% of the total number of extraction sites. One can also assume that there are several companies or corporate groups among the 25 largest suppliers that do not meet the size criteria explained in Selection of payment flows so that the selection criteria decided by the MSG do not apply to them. Due to the high number of small and medium-sized enterprises that are not covered, the coverage of the quarried natural resources sector remains significantly behind the coverage of the other sectors.

Identification of government agencies

The total number of government units generating revenues from the extractive industries in Germany is directly derived from the payment flows defined for this third D-EITI report. Due to the federal structure of the administration in Germany, it is not possible to centrally record the relevant payment flows. In detail, the following government agencies receive payments from the extractive sector:

  • Corporation tax: the competent tax offices at the companies’ registered offices
  • Mine site and extraction royalties: the competent mining authorities of the Federal States in which the mine site covered by the permit/approval is located
  • Trade tax: the municipalities in whose territory the tax-relevant permanent establishments of the extractive companies are located
  • Lease payments and payments for infrastructure improvements: government agencies at the Federal State or municipal level, depending on the type of payment

Dealing with tax secrecy

EITI reporting includes tax data, namely payment flows relating to corporation tax and trade tax, which are subject to tax secrecy pursuant to §§ 30 et seq. AO (cf. the explanations in Tax secrecy). During the preparation of the EITI report, the payment flows reported by companies to government agencies were processed and disclosed. This use of tax-relevant data is only permitted with the expressed consent of the taxable person, i.e., the respective company (§ 30(4) no. 3 AO). The data collection templates ensure that this consent is obtained from each individual company for the purpose of publishing the data as part of EITI reporting.

Measures to secure confidential data

All project-related communication via e-mail and all other project-related data were stored in a Germany- based data centre certified according to ISO 27001 and ISO 9001. To this end, a specific platform was made available through which the companies could upload project-related data (multiple times if necessary). However, for security reasons, the data could not be changed after an upload. It was ensured that no company had access to the data of other participants. The German EITI Secretariat in Berlin was in charge of the administration of data exchange and data storage as well as the e-mail service.

Templates and instructions for data collection

The Independent Administrator developed an Excel- based template for collecting the relevant data from companies in accordance with the decisions made by the MSG regarding the content of the D-EITI reporting process. In addition to the templates for data collection, the Independent Administrator prepared “Notes on data collection in the context of the German EITI process”. These notes are intended to provide practical guidance and assistance to companies for understanding and using the data collection templates.

Quality of the data provided by companies

In Germany, there are comprehensive laws and regulations regarding

  • accounting,
  • the disclosure of company data, and
  • audit obligations

which are designed depending on the size, legal form, and activity of the respective company. Corporations and partnerships with limited liability within the meaning of §264 a HGB must prepare annual financial statements with notes and, if applicable, a management report at the end of each financial year. The duty to audit financial statements is regulated, among other things, in the German Commercial Code (§§ 316 et seq. HGB) and in the Act on the Accounting of Certain Enterprises and Corporate Groups (PublG) (§6 PublG). A statutory audit obligation pursuant to the German Commercial Code exists for, among other “medium- sized or “large” corporations and limited liability partnerships. To be grouped into one of these size categories two of the three criteria of § 267 HGB must be fulfilled in each period.

The statutory audit must include at least the annual financial statements (balance sheet, profit and loss account and notes) as well as the management report and the accounting records. The auditor must determine whether the financial statements comply with the underlying accounting principles and, if applicable, with other legal foundations such as the articles of association or the memorandum and articles of association (legality/regularity audit). Furthermore, the auditor must determine whether the respective financial statements together with the associated management report provide a suitable understanding of the company’s position, and whether the management report suitably describes the opportunities and risks of future development. The result of the audit is summarised in the so-called auditor’s report (cf. § 322 HGB). In the case of statutory audits, the auditor’s report must be disclosed together with the annual financial statements and the management report pursuant to § 325 HGB by electronic submission to the Federal Gazette (Bundesanzeiger) so that it is available to the public.3 In exceptional cases, the shareholders may refrain from disclosure, provided that consolidated financial statements are disclosed in which the respective company is included, and certain payment guarantees are given. However, these cases can also be transparently tracked via the electronic Federal Gazette.

In contrast to the annual financial statements, the (consolidated) payment reports pursuant to §§ 341q et seq. HGB have not been subject to a statutory audit requirement so far. However, within the scope of their duties according to § 321(1) or (2) HGB, auditors must report in the audit report if they find during their audit work that no (consolidated) payment report has been prepared or disclosed despite the existence of a legal obligation to do so. However, unlike the auditor’s report, the audit report is generally not available to the public but is addressed exclusively to the board of the audited company.

In the performance of their respective duties, the legal representatives as well as those responsible for corporate monitoring are usually supported by an internal audit department. Even though there is no explicit legal obligation in Germany to establish such a process-independent function, having an internal audit department is in line with the principles of good corporate governance (cf. German Corporate Governance Code). This is especially true for companies that are part of large, complex, or internationally operating groups. At the same time, legal representatives increasingly use these organisational structures to set up effective compliance management systems that are not only designed to comply with legal regulations but also to observe the ethical rules of the company or group. As a rule, these systems also include external contact persons appointed by the company or group to whom whistle-blowers can report possible violations of legal regulations or ethical rules.

Quality of government revenue data

The data on the payments made by the companies for the current reporting year are the basis for the revenue disclosed by the government agencies that received the payments.

In the two previous D-EITI reports, the revenues of the government agencies were collected and directly reconciled with the payment data reported by the companies. This payment reconciliation did not result in any discrepancies worth mentioning (test of details or case-by-case approach). Based on these findings, this third German EITI report deviates from the previous approach and analyses the processes and controls, or control mechanisms set up by government agencies to ensure that the respective payment flows are properly collected and paid (system-based approach). The term “proper(ly)” means, with regard to the objective of EITI, among other things,

  • that sufficient processes or procedures are in place at the level of the respective government agency to ensure that payments are made in accordance with applicable laws and regulations and in a timely manner;
  • that processes and controls are in place to ensure full and timely resolution of any discrepancies between the amounts claimed by the government agencies and those paid by the companies;
  • that sufficient controls are in place at the level of higher government agencies; and
  • that a review of the controls by independent audit bodies is ensured.

The entirety of established processes, procedures and controls is deemed to be an internal control system used to support proper assessment and collection of the respective payments. In Germany, this system is fundamentally based on an interplay of legal foundations (e.g., civil service law, criminal law, administrative regulations), the structure and organisation of the respective government agencies (e.g., via rules of procedure, the creation of business distribution plans, separated functions, and/or the dual control principle), and an additional monitoring of processes and controls (e.g., via internal audit units and other independent audit bodies).

The analysis of the processes and controls established by the government agencies necessarily covers other official entities involved in the processes carried out by the audited government agencies and the relevant legal framework. Subchapter cc takes a closer look at the structure of the relevant government agencies. A comprehensive description can be found in the publication “The German Tax Administration 2018” (Die Steuerverwaltung in Deutschland Ausgabe 2018), available at the website of the Federal Ministry of Finance (www.bundesfinanzministerium.de). Annex c also contains schematic overviews of the organisational structure and the processes and controls used for investigations regarding corporation tax and mine site and extraction royalties.

The Independent Administrator has obtained an understanding of the processes and controls in place based on MSG’s documents and discussions with representatives of the MSG and the relevant authorities. These findings were compared with, among other things, the requirements of the US framework Committee of Sponsoring Organisations of the Treadway Commission (“COSO”). This framework concept has been widely disseminated worldwide. Its basic principles are reflected, for example, in the Standards for Internal Control in the Federal Government of the United States Government Accountability Office, so they can also be applied to government agencies. At the same time, this framework concept is the methodological basis for the Auditing Standard 261, “Identification and assessment of risks of error and Auditor’s Responses to the Assessed Risks of Error” issued by the Institute of Public Auditors in Germany (Institut der Wirtschaftsprüfer in Deutschland e.V. (IDW)), which is currently applied in Germany for statutory audits of financial statements.

According to COSO, the components of an internal control system include the control environment, risk assessments, control activities, information & communication, and measures to monitor the internal control system. These components were applied by the IA to the relevant payment flows of corporation tax and mine site and extraction royalties.

The IA considers the concept of the pilot (consisting of an assessment of the processes and controls estab- lished by the relevant government agencies for the proper collection of payments) to be well suited to meet the requirements of the EITI Standard for reliable disclosure of payments from the extractive industries. Therefore, the IA believes that the piloted concept can be used as an alternative procedure to the previous approach that consisted of individual case audits with comprehensive reconciliation of all material payment flows of a reporting year.

In addition, the findings from the previous payment reconciliations for the first and second D-EITI reports were included in the analysis and assessment of the IA as a case-by-case confirmation of the effectiveness of the processes and controls put in place. Therefore, the systems-based approach in the context of this third German EITI Report and the previous findings from the payment reconciliation complement each other. Together, they are the basis of the assessment carried out by the IA.

The nature and scope of the work of the Independent Administrator under the payment reconciliation pilot for the third D-EITI report are described in a comprehensive work report. The following subsections summarise the most important work and findings for the payment flows arising from corporation tax as well as mine site and extraction royalties.

Trade tax payments are not considered separately below, because the processes for assessing trade tax are largely the responsibility of the tax offices. Therefore, the findings from the analysis of the corporation tax payment flow can be transferred to the assessment of trade tax. The uniform base amount of trade tax issued by the tax offices is the so-called basic assessment notice for the subsequent determination of the actual amount of trade tax by the respective municipality. The municipalities determine the amount of the trade tax liability by applying an individual assessment rate to the uniform base amount of trade tax. Therefore, the amount of trade tax can vary from municipality to municipality depending on the applied assessment rate.

The collection of trade tax is entirely the responsibility of the far more than 10,000 municipalities, so that processes and controls in this respect differ in content. These differences are due, amongst others, to differences in the size and structure of the respective municipal administration. Meaningful generalised statements on the organisation of payment processes in the municipalities can not be made due to the heterogeneity of municipal self-administration.

According to COSO, the control environment basically comprises the attitude, awareness, and actions of those responsible for monitoring and those with management functions regarding the internal control system and its importance within the respective government agency. The control environment shapes the basic attitude of an organisation by influencing the awareness of employees. The term “awareness” can be defined as a commitment to act with integrity and in accordance with ethical values.

The control environment of the government agencies relevant here is equally characterised by a strict hierarchy, as provided for in the Financial Administration Act (FVG) (cf. link in footnote) for financial authorities.4 The organisation of the mining authorities is the responsibility of the respective Federal State – the Federal Mining Act does not contain any more detailed provisions in this regard.

Within the relevant government agencies, the respective organisational structure is clearly regulated by rules of procedure (e.g., the rules of procedure for the tax offices, cf. link in footnote), business distribution plans, job descriptions and administrative instructions. While the responsibilities of the respective job holder within the assigned administrative processes are derived from the internal job descriptions or business distribution plans, supervisory duties, and powers of instruction of the respective superiors are derived from the rules of procedure and administrative instructions. Within the administrative organisation, special attention is paid to the stringent adherence to the dual control principle within the administrative processes and to the organisational separation of assessment and collection processes, i.e., the assertion of payment claims by the relevant government agencies and the collection of payments due from those obliged to pay.

In addition, the control environment of the relevant government agencies is significantly shaped by German civil service law.5 The German civil service law is a separate area of law that regulates the special rights and duties of civil servants. On the one hand, German civil servants are under a duty of strict impartiality and loyalty to the German Basic Law in the exercise of their activities and they are excluded from the right to strike. On the other hand, they have a right to lifelong employment with appropriate remuneration and pensions within the framework of defined careers in the public sector. Besides, in the selection of candidates to fill vacant posts, the relevant government agencies may solely consider the suitability, ability, and professional performance of the candidates. The duty of loyalty, the duty of obedience, the duty to serve, and other duties of civil servants are derived from these principles.

Breaches by civil servants of the duties arising from their employment relationship are subject to disciplinary law, a sub-area of civil service law that regulates how to proceed in the event of possible breaches of duty and what consequences may result for the respective civil servant if guilt is established. In addition to breaches of duty in the professional area of responsibility, breaches of duty may also result from conduct outside the relevant government agency, insofar as these are likely to affect the trust of citizens in a way that is significant for the relevant government agency or the reputation of the civil service.

Due to their special legal position, civil servants are obliged to behave with integrity, including compliance with or implementation of laws and regulations, and to act in accordance with the ethical values derived from civil service law, including compliance with the law and the constitution. This includes the explicit release from the confidentiality obligation pursuant to § 37(2) no. 3 BeamtStG, if a civil servant reports to the competent supreme authority or agency a suspicion regarding a case of corruption (§§ 331 through to 337 StGB) that is substantiated by facts.

In addition to the regulations governing the civil service, several other regulations exist in Germany to ensure the integrity of public administration. For the area of corruption prevention, in particular the Guideline on the Prevention of Corruption in the Federal Administration (Richtlinie zur Korruptionsprävention in der Bundesverwaltung) which contains essential measures of a prevention strategy such as e.g.

  • identifying areas of work that are particularly vulnerable to corruption,
  • introducing the multiple control principle and
  • appointing a contact person

as well as developing a code of conduct for employees and a guide for supervisors and the management of government agencies. Supplementary recommendations on the prevention of corruption in the federal administration serve to support the implementation of this guideline. At the Federal State level, there are also various legal regulations and administrative provisions to prevent unlawful and unfair influences on administrative action (cf. for example the Anti- Corruption Act of 16 December 2004 for North-Rhine Westphalia).

Risk assessments

The risk assessment process is the identification and evaluation of risks regarding the achievement of the objectives of the respective process. At the level of the relevant government agencies, a distinction must be made between risks in the assessment procedure and risks in the collection procedure.

Assessment procedure

The mine site and extraction royalties are based on self-assessment by the parties that must pay the royalties, i.e., the extractive companies or payers. The payable amount is first determined by the payer based on the relevant laws and regulations, and then communicated to the respective government agency.

This self-assessment procedure can involve risks of error on the part of the payer, which can include clerical or input errors when entering the data in the self-assessment form, an unintentional misinterpretation of relevant laws and regulations, and/or a deliberate disregard of laws and regulations. Accordingly, the relevant government agencies have extensive audit rights to make sure that the information prepared and submitted by the payers is correct and complete.

In contrast, there is no self-assessment for the determination of the payable income tax amount (corporation tax/trade tax). Taxable companies are subject to a legal obligation to file income tax returns, which, because of time-based taxation, must generally be filed annually. Subsequently, the competent tax authority checks the information submitted by the respective taxable company. Once the relevant tax office has approved the income tax return submitted, they send the income tax assessment including the payable amount to the taxable company. A review of the tax returns can take place downstream during tax audits.

Collection procedure

Risks in connection with the assessment process must be distinguished from risks in the payment collection process. Such risks could exist, if, for instance, staff responsible for assessment is also involved in the collection process. Risk management relies on a strict separation of functions within the relevant government agency between those responsible for the assessment and those responsible for the collection of payable amounts. Besides any risks existing are mitigated by the fact that the payers can only make payments by bank transfer, i.e., cash payments are excluded. The separation of functions ensures that

  • those responsible for assessment tasks do not have access to the (bank) accounts of the relevant government agency to which the payers must pay the assessed amount by bank transfer, and
  • each case is processed by at least two

Dealing with deviations between payable and paid amounts

Any discrepancies between the assessed payable amount and the amount received are clarified by the respective collection unit.

In the case of underpayments of corporation tax, a reminder is automatically issued or collected by the enforcement unit (a separate department of the collection unit) in accordance with the applicable laws and regulations. Overpayments are kept by the collection agency on a custody account and offset against possible other outstanding claims against the taxpayer in connection with other taxes or periods. Only after netting, any remaining difference will be refunded to the taxpayer.

Similar processes have been established in the collection process for mine site and extraction royalties. However, due to the significantly smaller number of companies that must pay these royalties, no automated reminders are sent; instead, any late payments are handled on a case-by-case basis.

Information and communication

The “information and communication” component of an internal control system consists of procedures and measures used by the respective government agency to generate, obtain, process and forward to the competent internal unit within its organisation the relevant (payment) information in a suitable and timely manner. The information and communication procedures used for the assessment and collection process are described below for the payment of corporation tax and mine site/extraction royalties.

Corporation tax

Corporation tax returns are regularly transmitted electronically to the competent assessment tax office by means of a programme interface. Whether the tax office is responsible for the assessment process or not depends on the district in which the place of management or the registered place of business of the enterprise is located.

The organisation of a tax office as a whole and the rights and duties of the individual units within the tax office are defined in decrees on the rules of procedure of the tax offices (called FAGO). The decrees are issued by the supreme tax authorities and are identical for all Federal States. The FAGO defines the principles of organisation of the tax offices pursuant to the Financial Administration Act (FVG) and is available to the interested public.

In most cases, the case workers at the assessment office are not only responsible for checking the information in the corporation tax return, but also for the final signing of corporation tax assessments. In the case of companies exceeding certain size thresholds (e.g., annual turnover, annual profit) or classified as legally complex cases by the system or those in charge at the tax office, the corporation tax assessment notice is finally signed by the head of the assessment office or by an employee of the quality assurance unit located in the same assessment office. The corporation tax assessment is approved electronically. If the tax assessment must be signed by the superior the case worker cannot release the tax assessment notice electronically on his own authority. This is usually the responsibility of the head of the unit who finally approves the assessment notices.

To ensure that taxes are correctly paid, companies may be subject to an additional tax audit beyond the audit of the corporation tax return. These audits are carried out at the respective company’s place of business by a department that is separate from the assessment office in terms of personnel and organisation. Depending on the size of the enterprise, these audits are carried out at random, based on a proposal by the assessment office or as follow-up audit. Large companies and corporate groups are generally subject to follow-up audits. The tax audit office is thus the “extended arm” of the assessment office for auditing the companies at their place of business. The involvement of the auditors and their heads of department (who are not identical with the heads of department of the assessment offices) is an example of how the “multiple eyes principle” in the assessment procedure works.

As soon as a corporation tax assessment notice has been released by the assessment office, the payable or refundable amount is debited in the responsible collection office through electronic data exchange. It is only after this release that the collection office is included in the overall process. Due to the centralisation of the treasuries, the assessment area and the payment area are often not only separated within a tax office, but the payment area is outsourced to a so-called payment processing unit. Depending on whether the tax administration of the respective Federal State is characterised by a two-tier or a three-tier structure, the payment function can be assigned either to the regional tax directorate or to the Ministry of Finance of the Federal State. As a result of this, the case workers from both areas usually do not know each other personally.

Mine site and extraction royalties

The calculation, determination and collection of mine site and extraction royalties is generally governed by the Federal Mining Act (BBergG) and the extraction royalty ordinances of the Federal State (cf. Revenues generated) in conjunction with the relevant provisions of the Fiscal Code (AO). If mining rights date from the time before the current Federal Mining Act of 1982 came into force (“old rights”), no mine site and extraction royalties need to be paid (cf. the explanations in Approval of mining projects).

In Germany, the State Office for Mining, Energy and Geology (LBEG), headquartered in Hanover, is responsible for by far the largest share of revenue resulting from mine site and extraction royalties (95% for the reporting year 2017). Consequently the LBEG was used for the analysis of processes and controls. The LBEG is subject to the supervision of the Lower Saxony Ministry of Economic Affairs, Employment, Transport and Digitalisation. The LBEG units responsible for assessing the mine site and extraction royalties cannot be compared to the assessment tax offices in terms of their staffing and organisational structure which is also due to the manageable number of companies subject to royalties 6 and the self-assessment procedure. The LBEG has one case worker, two external auditors and one head of unit who assess the mine site and extraction royalties of companies in Lower Saxony, Schleswig-Holstein, Hamburg, and Bremen.

Like corporation tax, the organisational arrangements provide for a strict separation between case handling (assessment/collection) and payment processing. Being an organisational unit of the Lower Saxony Ministry of Finance, the Chief Cashier’s Office of the State of Lower Saxony (Landeshauptkasse Niedersachsen) is responsible for the technical processing of payment flows for the Federal State of Lower Saxony, using the budget execution system as part of the budget management system. The Chief Cashier’s Office is not responsible for the substantive clarification of facts in connection with the mine site and extraction royalties. Accordingly, the Chief Cashier’s Office is not involved in the clarification of facts.

The companies liable to pay extraction royalties do a self-assessment to enter the data required for the assessment of the extraction royalty amount via a web client system called VAS (Veranlagungssystem Feldes- und Förderabgabe [Extraction Royalty Assessment System]). In VAS, all master data relevant to accounting are managed for each company (e.g., any benefit items) and the royalty amount is calculated by the system from the data provided by the companies. The mine site royalties are not processed in VAS but in the electronic file system of the LBEG. The case handling department at the head office in Clausthal- Zellerfeld is responsible for the correct and complete determination of the mine site and extraction royalties (“debiting function”). The multiple eyes principle is ensured by the fact that the head of the unit must co-sign the assessment notice. The case handling department issues the assessment notices to the companies and prepares cash orders, which are transmitted to the LBEG headquarters in Hanover via the electronic file system for checking and approval.

After checking and approval, the cash orders are registered in the budget execution system and any differences between incoming payments and debit positions are clarified.

In accordance with the nature of self-assessment, the verification of the information provided by the companies during external audits is a central element of the royalty assessment process carried out by the LBEG. According to the information provided, the external audits do not cover all self-assessments due to the lack of personnel. Rather, priorities for external audits are defined.

Monitoring the internal control systems of relevant government agencies

The monitoring of controls by the (administrative) unit includes all organisational and procedural measures used to assess the effectiveness of the internal control system over time. It must be ensured that the controls always exist and are actually carried out. For both the corporation tax and the mine site and extraction royalties, the implementation of the monitoring function is ensured, among other things, through internal audit units. The reports of these internal audit units are not public (just like the reports created by internal audit units of companies or the audit report of an auditor) and are addressed to those responsible in the government agencies.

Corporation tax

For corporation tax, the regional tax directorates or the Ministries of Finance of the Federal States carry out controls in the form of business audits on an annual basis. These audits cover both assessment and payment processes. During these controls, cases are selected to be checked for the regularity of processing.

In addition, at the level of the Ministries of Finance of the Federal State, a separate internal audit unit is usually set up – this unit reports directly to the management of the authority. The work of the internal audit units in the Federal State of Hesse, for example, is based, among other things, on the “Recommendations on Standards for Internal Auditing in the Administration of the Federal State of Hesse”. These standards provide a uniform and interdepartmental working and legal basis for the work of the internal audit departments. They are based on the auditing standards of the German Institute for Internal Auditing (DIIR, Deutsches Institut für Interne Revision e.V.) and the “Recommendations of the Federal Ministry of the Interior for Internal Audits”. The internal audit units perform independent auditing and control functions by examining administrative decisions for deviations and irregularities and providing suggestions for their elimination and future avoidance, thus supporting the efficiency and effectiveness of the public administration.

The internal audit units prepare audit reports on their work, which is generally submitted to the management of the audited organisational unit for approval. The audited organisational unit receives a copy of this report. The internal audit unit submits a written report on its activities to its management at least once a year. Audit-related reporting during the year remains unaffected.

Pursuant to §19 FVG, the Federal Ministry of Finance may cooperate in external audits of the state tax authorities via the Federal Central Tax Office (so called federal tax audit). In a federal tax audit, the Federal Ministry of Finance is informed, among other things, of tax developments that may be of significance for legislative measures or administrative regulations.

Mine site and extraction royalties

The monitoring of the processes relevant to D-EITI in connection with the collection of mine site and extraction royalties is carried out by the internal audit unit at the level of the Ministry of Finance of Lower Saxony. The internal audit unit is responsible, among other things, for monitoring the procedures and controls within the Chief Cashier’s Office of the State of Lower Saxony that is responsible for the processing the payments of mine site and extraction royalties.

In addition, control activities are important with regard to the current financial management of the respective Federal State budgets. In Lower Saxony, for example, the receipts are assigned to the corresponding budget title within the budget execution system so that the administrative unit responsible for the budget can compare the planned income with the actual income. In line with the importance of the mine site and extraction royalties for the respective budget, it is also possible to compare the planned income generated through mine site and extraction royalties with the amounts received across periods. This comparison ultimately allows the interested public to exercise control via the usual processes of political participation. According to the findings of the IA, the mine site and extraction royalties are currently shown separately in the publicly available budgets of Lower Saxony, Schleswig-Holstein, Rhineland- Palatinate, and Bavaria.

Monitoring of controls by independent audit bodies

The administrative units relevant for D-EITI are subject to audit by municipal audit bodies (e.g., the municipal audit office of North-Rhine Westphalia [Gemeindeprüfungsanstalt NRW]), the individual states’ courts of audit and the Federal Court of Audit (Bundesrechnungshof) (hereinafter referred to as audit bodies).

Due to the federal structure of Germany, there are independent audit bodies at both federal and state level to control the budget management. The competence of the Federal Court of Audit is limited to the financial conduct of the Federal Government.7 The Federal Court of Audit has neither a right of supervision nor a right to issue instructions to the audit offices of the Federal States. The audit bodies are independent supreme authorities of the Federal Government and the Federal States. Their tasks, position and powers are based on the German Basic Law (Art. 114 GG) or the constitutions of the Federal States and specified in the budget regulations of the Federal Government and the Federal States.

At the level of the local authorities (municipalities and local government associations), the audit bodies can also assume the task of external financial control (so-called “supra-local audit”), depending on the Federal State. The internal control of the local governments (“local audit”) is carried out by (municipal) audit offices.

The following principles apply as a standard for the audit of state and municipal budget and financial management:

  • Regularity of law enforcement and administrative decisions, and
  • Efficiency and economy in budget and financial management

The principle of regularity requires, amongst others, correct accounting (proper calculation, justification of entries and booking) of the individual invoice amounts. The competent audit office is free to decide on the content, scope and frequency of the audit procedures.

The audit results are made known to the bodies concerned in the form of audit reports. The audit office may communicate the audit result to bodies other than the audited bodies if it considers this necessary for special reasons. Selected audit results are nevertheless summarised in annual reports that are available to the public. In reviewing the publicly available reports of the Federal Court of Audit and the State Courts of Audit of Hamburg, Hesse, Lower Saxony and Schleswig-Holstein for the 2018 reporting period, the IA did not identify any specific statements on the payment flows in question during the period under review.

The German audit bodies support the implementation of the International Standards of Supreme Audit Institutions (ISSAI) developed through the International Association of Supreme Audit Institutions (INTOSAI).

On July 1, 2016, the President of the Federal Court of Audit was appointed as a member of the United Nations Board of Auditors for six years. This means that Germany is responsible for auditing nine international organisations. All audits are conducted in accordance with INTOSAI standards.8

The audit bodies of the Federal States also engage in international exchange and regularly discuss current standards and the audit methods applied by them

in the European Organisation of Supreme Audit Institutions (EURORAI). All this shows that high audit standards are consistently applied at both national and sub-national levels.

1 Sie finden das Konzept zum Pilot zum Zahlungsabgleich, den Arbeitsbericht des Unabhängigen Verwalters sowie die Stellungnahme der MSG zum bisherigen Umsetzungsstand des Pilot zum Zahlungsabgleich hier: https://d-eiti.de/mediathek-dokumente/

2 Orbis Europe Datenbank des Anbieters Bureau van Dijk (www.bvdinfo.com), abgerufen am 20. Oktober 2020.

3Die Abschlüsse sämtlicher am Bericht teilnehmenden Unternehmen sind auf dem Portal des Bundesanzeigers verfügbar. https://www.bundesanzeiger.de/pub/de/start?0

4Eine umfassende und übersichtliche Darstellung der Steuerverwaltung in Deutschland, in der auch die Unterschiede zwischen den Bundesländern dargestellt werden findet sich in: Die Steuerverwaltung in Deutschland (BMF 2018)

5 den zuständigen Stellen sind z.T. auch Tarifbeschäftigte angestellt, die nicht dem Beamtenrecht unterliegen. Diese sind aber gleichwohl dem Gemeinwohl verpflichtet und müssen ihren Dienste ebenfalls objektiv, neutral und gesetzesgemäß verrichten. In Entscheidungsprozesse ist jedoch mindestens immer eine BeamtIn involviert.

6Im BVEG Jahresbericht 2018 findet sich eine Übersicht über die abgabepflichtigen öl- und gasfördernden Unternehmen in Niedersachsen, Hamburg und Schleswig-Holstein.  https://www.bveg.de/content/download/11711/134387/file/BVEG%20Statistischer-%20Bericht%202018.pdf