Considering that Luxembourg’s foreign policy is based on the “three Ds” (diplomacy, development, and defence), and that Luxembourg governments have been priding themselves on the fact that it spends 1% of its GNI on development aid, this report is significant because it exposes several serious failings in the administrative governance, management and the follow-up of that money.
Furthermore, it was found that the final reports on projects were almost always delayed, incomplete, and the qualitative evaluation of projects was sometimes lacking.
Lux-Development has been criticised in the past; it was accused of spending so much money on external audits (by KPMG) and on checking where the money went, that the budget spent on helping people on the ground was smaller than advertised due to the increasing operating and auditing costs.
Back to 2012
In 2012, the Court of Auditors issued a report on the budgetary implementation of Lux-Development from 2008 to 2010, and followed this up on the request of the parliamentary committee on budgetary control.
The results show serious failings, both within the agency, and within the department for development, which underlies the ministry of foreign and European affairs (MAEE).
The Court of Auditors issued ten recommendations in the initial 2012 report where it considered that significant improvements had to be made:
The convention between state and Lux-Development did not have an updated protocol
Power to sign: the principle of 4 eyes (2 signatures) was not followed
Non-respect of the separation of functions in budgetary execution
Incomplete budget on the operating costs
Overestimation of the operating costs and accumulation of non-justified reserves
Absence of separation of duties in ministerial control
Absence of reimbursement to the state of the interests generated by placing the funds into management
Non-respect of the deadlines of end of projects
Absence of mid-term reviews and controlling the allocation of funds
Absence of qualitative evaluations of projects and programmes
The current report, published on 3 April 2017, analysed the years 2013-2015. It first reviewed whether any of its recommendations had been followed. The court of auditors noted that a new agreement between the state and Lux-Development has been signed, which means that some recommendations are not applicable anymore (recommendations 1, 4, 5). Four recommendations had not been taken up at all.
Separation of duties
The auditing agency noted that not enough had been done to ensure the principle of the separation of tasks in ministerial control: civil servants working in the cooperation department of the MAEE are also members of the executive board of Lux-Development. Currently, the ministry has three representatives on that executive board: the director, the assistant director and a geographical representative from the Development Department (Direction de la coopération au développement et de l’action humanitaire).
From 2013 to 2015, the following financial or administrative acts have been signed off by civil servants who also sit on the executive board:
Operating costs for Lux-Development (assistant director of the Development Department)
The written communication from the ministry on the financial package allocated to the agency for projects and programmes in 2013 (director of the Development Department)
The allocation of financial packages by country that Lux-Development received in 2013 and 2014 (by the director of the Development Department)
The order to pay for project CVE-981 “PIC IV in Cape Verde” for €42 436,38 (the assistant director of the Development Department)
The request to close the account which contained the interests on management funds and the opening of a new account for risk provision (director of the Development Department)
10 out of the 11 selected closing notes (bordereaux de cloture) were signed by the director of the Development Department
4 out the 5 selected ministerial approvals of cooperation projects were done by either the director or the assistant director of the Development Department.
The court asked that they no longer have the right to approve or sign any documents which result in any expense of the state.
The ministry’s reply was that it does not consider this a conflict of interest. Nevertheless, it proposes to distinguish between two types of administrative documents:
administrative documents with a strategic aim, such as the approval of the annual operating budget of Lux-Development
the determination of the annual financial package to the implementation of projects/programmes
the approval of the geographical distribution of annual financial packages, any changes to the operating budget or the annual financial package for projects
the ministerial approval for the delegated or third cooperation projects.
These documents will now be signed by the minister.
Operational administrative acts, such as closing accounts, will still be signed by civil servants who have the power to sign.
Power to sign
The report found that the maximum amounts a single person can still transfer and allocate had not been reduced. The general manager can thus transfer up to €100,000 on his own; the assistant general manager up to €50,000; the court recommended that the amounts for which only one signature is required should be reduced.
The ministry has reiterated its position that current dispositions are appropriate.
No separation of functions in signing off budget
The court asked the development fund again to lower the thresholds for contracting and payments for which one single signature is required. It also advised that everything should be done to respect the principle of different actors in the execution of the budget when it comes to operating costs, i.e., to have two different people in the posts of leader of the department “control and management” and of the department “accounts and finance”.
Lux-Development’s “accounts and finances” department employs 4 staff. For the agency’s funds, this department’s tasks are to encode accounts documents, to pay the bills of suppliers, to close the budget.
The agency also has a management control department, staffed by one person. This department “authorises” all the financial commitments and ensures the respect and control of financial procedures.
The court noted that the leader of the “management control” department is also leader of the “accounts and finances” department.
The ministry replied in the 2016 report that the separation was in force when it came to the implementation of projects and programmes, but not when it came to operating costs. The leader of the two departments can now “directly contact the executive board without passing by his superiors.” Furthermore, the job specification of the management control leader now says he “controls” and does not “authorise” anymore the operating costs.
Budgets without VAT
During this period, around €90 million was transferred from the development fund the Lux-Development agency every year, which constitutes around 50% of its total spending. This money is allocated to support projects and programmes (€77.38 million in 2013; €80.98 million in 2014 and €76.69 million in 2015), and also to reimbursement the state for the operating costs of Lux-Development (€10.52 million in 2013, €10.79 million in 2014, and €10.94 million in 2015).
The court recommended again that all elements (income and expenditure) should be included in the final operating costs budget.
The report notes that its recommendation to include VAT in its total spending has not been followed.
In the 2014 final spending forecast, the budgeted expenses at €9,724,485, while real spending was €213,286 higher.
“These differences come from the fact that the budget of the agency does not systematically include all the income and that it takes over certain expenses which are again and again underestimated”, according to the report.
External audit’s recommendations not followed
Despite having ordered an external audit on the principles of good governance and financial reporting of Lux-Development in 2014. Out of the 10 recommendations, the executive board adopted only three.
The ministry replied that the agency implements them progressively.
Delayed final reports and qualitative evaluation
In 2012, the court found for that 7 out 12 completed projects, the final report was not finished after the prescribed 6 months. The discharge must be given three months after receipt of the final report, and again that deadline was missed for 9 out of 12 projects.
In 2012, 5 out of 12 projects did not have a qualitative report submitted on time.
The qualitative evaluation of a project includes a midterm review with recommendations, and a final evaluation which assesses whether those recommendations were followed and whether the objectives were met.
The ministry wrote that one project could not have a final report because it was a prize, and explained the delays for a few others. Instead of the response rate of 82% that the court found, the ministry found a rate of 94%.
In 2016, 5 projects implemented by Lux-Development were analysed by the court of auditors, and all final reports were delayed; for 3 of them, the final discharge was also delayed. For the qualitative evaluation, 3 projects had no qualitative evaluation.
The ministry replied that for some, it would be good to group them together and learn lessons from all of them. For another, it was waiting for reports from the UN’s development agency.
No yearly audits of funds
The court has noted that there were no yearly audits, despite regulations requiring it. The ministry has replied that these regulations will be removed.