Criticism also from VfGH – RH advises to dissolve financing agency Covid19

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The Court of Auditors’ (RH) final report goes to court with the Covid-19 Federal Finance Agency (COFAG). The examiners criticize the set-up of the Corona aid, there is talk of “significant over-funding potential”. The financing form of the fixed-cost subsidy I alone resulted in up to 117 million euros in additional payments. There is also widespread criticism of the establishment and composition of the management and control bodies. The Court of Audit recommends that COFAG be dissolved.

COFAG was established within days by order of the then Minister of Finance Gernot Blümel (ÖVP) to handle the Corona aid. It is unclear to the Court’s auditors why COFAG, a new settlement office, was needed at all. After all, the Ministry of Finance could have used existing structures, such as tax offices that already have all company data or the state development bank AWS. The responsible finance department of the ministry was hardly involved. The Court of Audit also criticizes the fact that the new financing institution was established “without clearly documenting the decision-making process and decision-making at the Ministry of Finance and without considering alternatives.”

As of June 2021, COFAG had a working capacity of over 200 full-time jobs. This was mainly due to outsiders, as the finance office had only about 16 employees (full-time equivalents), including the two directors. From March 2020 to mid-2021, approximately 21 million euros was made for the purchase of advisory services and nearly 36 million euros at the end of 2021.

Financing draft led to distortion of competition
According to a simulation by the Court of Auditors, the financing form of the fixed cost grant I caused additional payments of EUR 101 million to EUR 117 million in the period from September 2020 to the end of June 2021. The auditors found “avoidably excessive funding potential” in the pre-lockdown sales surveillance for November and December 2020. This tool allowed companies belonging to a specific sector to obtain grants without having to prove financial damage. In groups there was “significant potential for overfunding” because, in the absence of a group vision, each branch as an individual company could claim subsidies up to the maximum amount. This has compromised the accuracy of subsidies and may have led to distortions of competition.

Directors of COFAG and ABBAG
Another criticism of the Court of Auditors is the interdependence of COFAG and its parent company ABBAG. The former director of COFAG, Bernhard Perner, was also the general manager of ABBAG. This led to practical problems: at the first general meeting of COFAG in March 2021, as the representative of the owner of ABBAG, he was not allowed to decide on his own discharge as director, discharge of his supervisory board and the amount of the remuneration for supervisory directors. Ultimately, four legal opinions were needed to legally complete the 2020 annual accounts. Perner also recently announced his withdrawal from ABBAG to move into the private sector. There were also errors in the vacancy and appointment of the management: These did not comply with the recruitment law.

In addition, the handling of conflicts of interest in COFAG’s supervisory board was insufficiently regulated, for example among the supervisory directors who also held management positions at real estate companies. Even before the company was founded, people who later held positions on the management and supervisory boards of COFAG had a major influence on the design of their future preconditions, according to the report of the Court of Audit.

External recorder commissioned
In order to determine the amount of the annual remuneration for the supervisory board, ABBAG commissioned a study in which Austrian banks with balance sheet totals of 8 to 20 billion euros were used as a comparison group. However, from the Court’s point of view, the comparison is flawed. Because: COFAG was not active in the market and did not have to bear any financial risks. As a result, the remuneration of the Supervisory Board has been set too high. The Court is also critical of the appointment of an external minutes secretary for the meetings of the Supervisory Board, which cost 125,000 euros from April to September 2020.

COFAG management approved nearly 700,000 applications at the end of June 2021. Only 221 applications had to be approved by the supervisory board because they were above 800,000 euros. Since there was no group consideration, for this small number of cases the management only had to obtain the approval of the supervisory board before approving the applications. In total, 79 percent of the applications resulted in the payment of subsidies. The highest subsidy paid to a company at the end of June 2021 was EUR 13.94 million.

Clear advice to the Ministry of Finance
For the financing agency, which, according to the Court of Auditors, did not need it, the sober but clear recommendation to the Ministry of Finance is: “When the financial measures come to an end, it is necessary to examine what services (…) are provided by COFAG and the company to be disband as soon as the tasks are completed.” The Court audited the period from March 2020 to June 2021.

The Constitutional Court (VfGH) also recently expressed its concerns about the handling of the Corona aid and therefore started an official investigation procedure in mid-October. The Supreme Court doubts whether the payment of the aid via a private legal entity – such as COFAG – is permissible. From the point of view of the judges, such financial assistance is one of the tasks of the sovereign state administration. Several constitutional principles would thus have been violated. It is sometimes problematic that COFAG’s activities are not directly subject to instructions from the Minister of Finance.

“cost what it may”
The federal government had started the Corona aid under the slogan “Cost it what it may”, as formulated by the then Chancellor and ex-ÖVP boss Sebastian Kurz. According to Eurostat data, 1,475 euros of tax money per Austrian was spent on economic aid from Corona in 2020. The Alpine Republic was therefore the frontrunner in Europe. The EU average was only 325 euros.

Source: Krone

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