Financial Equalization: Financial Allocations Pursuant to Section 21 of the Financial Equalization Law

From February to May 2016 the Austrian Court of Audit (ACA) carried out an audit of the financial management of the Federal Ministry of Finance (BMF) and of the provinces of Salzburg, Styria and Tyrol with regard to the financial allocations pursuant to Section 21 of the Financial Equalization Law 2008 (Finanzausgleichsgesetz, FAG 2008). The aim of the horizontal audit was to examine the distribution of financial allocations pursuant to Section 21 of the FAG 2008 by the BMF to the nine provinces (main distribution) and the sub-distribution to the municipalities in the provinces of Salzburg, Styria and Tyrol, to assess the arithmetic correctness and to evaluate the impact resulting from those distributions in the municipalities. The audited period ran from 2011 to 2015.

Following the in-situ audit and the exit meetings held at the BMF and in the provinces of Salzburg, Styria and Tyrol, the financial equalization partners agreed on a new financial equalization law for the period 2017-2021. Section 21 of the FAG 2008, which constituted the basis of the audit, was completely overhauled in FAG 2017.

In its statement on the audit result the BMF highlighted, among others, that it agreed with the ACA with regard to the fact that the provisions of Section 21 of the FAG 2008, which governed the distribution of financial allocations for the purpose of increasing the financial capacities of the municipalities, required reform. Consequently, Section 21 of the FAG 2008 had not been included in its extant form into FAG 2017. The reform had also been prompted by the complexity and error susceptibility of Section 21 of the FAG 2008 identified by the ACA during its audit. According to the BMF, all of the recommendations issued by the ACA had been implemented through the reform of financial equalization.