State of Central Government Accounts 2010

The regularity of central government finances in the Netherlands is of a high standard. This is one of the conclusions presented in the report State of Central Government Accounts 2010 that the Court of Audit published on 18 May 2011. The Court of Audit has approved the central government accounts and the central government trial balance for 2010. There was a slight increase in the number of regularity errors and uncertainties in 2010 but the number of shortcomings in the ministries' operational management was lower. The Ministry of Foreign Affairs and the Ministry of Social Affairs and Employment (SZW) are two ministries that have improved their operational management. At two other ministries (Health, Welfare and Sport (VWS) and Defence), the Court of Audit found persistent problems that require attention.

Objection against VWS grant management
The Ministry of VWS's management of grants worth €2.3 billion has not been in order for 12 years. The enforcement of statutory terms is inadequate, files are incomplete, there are errors in advance payments and decisions on grant decisions are inadequately reasoned. The efficiency of the awards is therefore also uncertain. An improvement plan provided insufficient assurance that errors would be prevented. The Court of Audit therefore qualifies grant management at the Ministry of VWS as a serious shortcoming. For the first time in several years, the Court of Audit initiated proceedings to lodge an objection. The Court asked the minister to report to the House of Representatives on the progress made with the improvement measures before 1 October. After the minister presented an improvement plan, the Court of Audit withdrew the objection. The Court of Audit will give its opinion on the improvements to the House before 1 November. 

The lodging of an objection, as the Court of Audit did this year in respect of shortcomings in grant management at the Ministry of VWS, is a rarity. It means that performance in 2010 (and previous years) and the intentions for 2011 did not provide sufficient confidence that improvements would be made. The minister was asked to explain how the problems would be tackled.

Persistent problems at Defence, reorganisation requires change plan
The second ministry with persistent problems is the Ministry of Defence. The number of shortcomings in financial management and, especially, material management is still high: 22. In 2007 the Court of Audit carried out an objection audit of these problems and agreements were made with the ministry regarding multiyear improvement plans. Less progress was made in certain areas in 2010 than foreseen. Furthermore, the significant spending cuts at the Ministry of Defence have made it necessary to revise the improvement plans. The Court of Audit believes new measures to improve management should be an integral part of the plans to carry out the economy measures. The Minister of Defence has accepted this recommendation and has prepared an action plan to tackle the shortcomings. The Court of Audit will follow the implementation of this plan. 

Ministry of BZK's responsibility for P-Direkt inadequate
Other shortcomings the Court of Audit found in 2010 related to personnel management in both the centralised P-Direkt personnel records (in operation at nearly all the ministries) and in personnel management at the Ministries of Justice, Finance, and Housing, Spatial Planning and the Environment (VROM). The shortcomings are evidenced, for example, in the continued payment of salaries after a member of staff has been dismissed. The Ministry of the Interior and Kingdom Relations (BZK) does not adequately fulfil its responsibility for P-Direkt. Several ministries use this shared service centre yet not all the preconditions for the proper conduct of tasks were fulfilled. The Ministry of BZK, the coordinating ministry, must ensure that appropriate management measures are in place for the central organisation that the participating ministries can rely upon. The government is considering working with more shared services as part of its Compact Civil Service programme. Four ministries (Economic Affairs, VROM, VWS and BZK) spent more money on external staff in 2010 than the government thought appropriate (no more than 13% of total personnel costs).

Improvements possible in procurement processes and European procurement
There are still shortcomings in the management of European public procurement at five ministries. Four ministries (VROM, EZ, VWS and LNV) do not observe applicable legislation and regulations for simple order and payment procedures and it is not always certain that the performance the ministries pay for is actually delivered.

Limited usefulness of policy information to House of Representatives
The ministries disclose in their annual reports that they together spent €237.6 billion in 2010. The information provided by the ministries on what they have done with the money has not increased in comparison with 2009. The Court of Audit could not establish to what extent eight of the ten government objectives it audited had been achieved. In the case of 19 of the 119 performance indicators audited, the Court queried whether the preparation of the policy information disclosed in the annual reports had been sound. The Court made recommendations on how to improve policy information.

The Court of Audit has set up a website – www.passievoorpubliekeverantwoording.nl – as a platform for opinions and views on how political managers should account for themselves. It specifically seeks the participation of industry, the accounting profession and the academic world.

Better and more efficient controls of central government can raise the standard of the ministers' accountability for their policies. The resultant information on the performance and operation of central government will then be more useful to the House of Representatives and will in turn improve the quality of parliamentary control. In the Court of Audit's opinion, which it has included in the State of Central Government Accounts 2010 for the purposes of Accountability Day, controls should conform with internationally accepted standards. The reorganisation of the civil service is also an opportunity for the ministries and the Court of Audit to eliminate duplications in their work.

In a period in which central government functions are being centralised, the Court of Audit has identified ways to improve the audit of financial information, operational management and the quality of the policy information that ministers forward to the House of Representatives. To this end, the ministry audit departments must evolve into organisations that advise the ministries' managers on improvements in operational management. This advisory task is currently underdeveloped because the audit departments also have an audit task and express audit opinions. This is a duplication of the Court of Audit's work as external auditor. Operational management should be in order at central government, including the audit departments, even in times of reorganisation.

Developments since the credit crisis
Since May 2009 the Court of Audit has reported every six months on the progress made with the measures taken by the government in 2008 and subsequent years to overcome the crisis in the financial sector. The reports also consider measures taken in response to the country crisis in the EU. At the end of 2010, the State of the Netherlands still had €41 billion outstanding in equity interests, loans and securities (year end 2009: €44 billion). A further €53 billion was outstanding in the form of guarantees and €13 billion in commitments arising from the back-up facility for ING. The risks to the State include ING's exposure to the American housing market and the prefunding of payments from the bank deposit guarantee scheme for the Icelandic bank, Icesave.

More and more financial measures are being taken in the EU to tackle debt problems in the EU member states. The Fifth Report on the Credit Crisis and the EU Country Crisis outlines developments in the various stability mechanisms in the fourth quarter of 2010 and the first quarter of 2011. At the end of 2010, the Netherlands had contributed more than €30 billion (including aid granted to Greece). The European Commission says Greece is going through a 'critical period'. The Netherlands has guaranteed €2.4 billion in aid for Ireland.
In the Report on the Ministry of Finance's Annual Report for 2010 the Court of Audit calls on the ministry to make an ex post calculation of the capital plan for the separation and integration of ABN AMRO and Fortis Bank Nederland (both state owned). The Minister of Finance has undertaken to do so. In 2010 the ministry had no insight into the actual fund flows for the agreed capital plan.

View of State financial position can be improved
At the request of the House of Representatives, the Court of Audit made recommendations for the first time in State Balance Sheet: view of the State's financial position on ways to improve the State balance sheet. This annual statement of the State's financial position currently falls outside the statutory audit mandates of both the ministry audit departments and the Court of Audit. In the Central Government Annual Financial Report, the Minister of Finance does not explain the relationship between the State balance sheet and other accounting information such as the central government trial balance. The State balance sheet does not include the financial positions of autonomous administrative authorities or legal persons with statutory tasks. The House of Representatives therefore has no insight into the financial position of these organisations. They include the UWV employee insurance agency, the Social Insurance Bank and the police regions, which spend billions of euros from the public purse every year to carry out public tasks. In consultation with Statistics Netherlands, the Ministry of Finance and the House of Representatives, the Court of Audit wishes to increase the insight available into the State's financial position. The Minister of Finance is willing to enter into a debate of the State balance sheet but believes the instrument adds very little value to the political decision-making procedure.

In addition to the overarching report and associated reports on the ministries' annual reports, the Court of Audit has issued the first Spending Cuts Monitor this year. This report and the tables it includes for all 11 ministries describe how the government will achieve the first spending cuts and economy measures in the €18 billion package. The tables show that the government has accounted for €2.65 billion of the spending cuts in 2011. The coalition agreement had included €2.9 billion in cuts in 2011, the government's first year in office (see separate press release).