Financial relations between central government and local authorities

We conclude in our report that the distinction between specific-purpose grants and general funding is blurring. In both cases it is not always clear who is responsible for what. Specific-purpose grants are increasingly allowing more policymaking freedom because municipalities and provinces may account for them over a series of years rather than every year. Accountability and audit, moreover, do not always satisfy the government's requirements. In addition, we conclude that the ministers have only limited insight into the results of the policies implemented by the municipalities and provinces. The regularity of expenditure is also inadequate for the ministers to fulfil their responsibilities. Ministers set non-enforceable preconditions on the use of funds to implement decentralised policy. If the ministers opt for general funding in such cases, they assume a ministerial responsibility that they cannot fulfil.

In our report we recommend that the ministers concerned tailor the financial arrangement to match the required allocation of responsibilities. We also recommend that the Minister of the Interior and Kingdom Relations (BZK) use an appropriate assessment framework and monitor its correct application. The ministers concerned should record the responsibilities and powers of the various levels of government for each grant more clearly. It would then also be clearer who was responsible for what, who had to collect what information and who had to record whether funds were applied regularly, efficiently and effectively and how they were spent. We further recommend that the Minister of BZK, who has primary governmental responsibility for relations with the provinces and municipalities, ensure that the allocation of responsibility for the funding is clear.

We think that if the provinces and municipalities' implementation of policy is to contribute to government policy, the ministers concerned should collect the policy information they need to assess policy progress and effectiveness. In the case of specific-purpose grants, moreover, they should also collect appropriate financial information. The ministers should lay down any restrictions on their responsibilities clearly in legislation and regulations. In the case of general funding, the ministers concerned should not decide how the funds are spent or request any accounting information.

In her response to our report, the State Secretary for BZK describes an assessment framework for the use of financial instruments. She accepts our recommendation to ensure that the responsibilities for the various forms of funding are allocated clearly. She recognises the importance of collecting sufficient policy information. The State Secretary thinks she will be able to present an assessment framework for policy development to the cabinet before the summer. She also refers to the statutory incorporation of the single information, single audit principle (SISA). This principle will allow the provinces and municipalities to account for their actions over a series of years. The State Secretary therefore does not agree with us that central government requests too little accounting information in respect of specific-purpose grants.

The Court of Audit is pleased with the State Secretary's decision to adopt our recommendation to ensure that responsibilities for the various forms of funding are allocated clearly. We think, however, that the State Secretary should take a clear stance on how decentralisation payments are current applied by the line ministers. We find it encouraging that the State Secretary recognises the importance of collecting appropriate policy information and will follow up our suggestions in this area. We agree that multiyear accountability in accordance with the SISA principle is one of the options. We think, however, that the information need – especially that of the House of Representatives – should be assessed on a case by case basis. We therefore think the House should express an opinion on the desirability of otherwise of this. We regret, finally, that the State Secretary's response does not consider our recommendation that ministers should not decide how funds must be spent or request accounting information. The current use of the decentralisation payments undermines the local authorities' discretion to apply the Municipality Fund and the Provinces Fund and also the House of Representatives' information position.