Swiss Federal Audit Office

Director’s foreword

On 1 September 2022, I took up my post at the helm of the Swiss Federal Audit Office (SFAO), the 13th Director in the 145-year history of the SFAO. Even though the tasks and the standing of the SFAO have changed over the years, one constant remains: the requirement to have an effective institution that monitors the federal budget and advocates for the cost-effective use of taxpayers’ money.

So our work is by no means a foregone conclusion.

As the highest financial monitoring body, in our audits we not only address problems but also highlight the potential for improvements. The aim is to foster the development of public administrations and to support Parliament and the Federal Council in the exercise of their functions.

This recipe for success needs the following ingredients: uncompromising objectivity and integrity, a high degree of professionalism, broad acceptance, a healthy dose of tenacity, a critical eye and the readiness to question our own behaviour and actions. We work constantly to refine this recipe, so that our work achieves optimum efficacy.

A robust recipe is not just necessary for the SFAO. The entire Federal Administration also needs it, to enable it to meet some major challenges. We examined some of these more closely during 2022 in our audits.

An unstable environment and exceptional situations place huge requirements on the SFAO and those being audited.

This became evident in the context of managing the effects of the COVID-19 pandemic. Swift and pragmatic approaches and financial support measures from the federal government were necessary – to the tune of around CHF 40 billion to date. Even though Switzerland weathered the pandemic relatively well, our audits revealed that additional efforts will be needed in the next few years. Potential cases of abuse need to be dealt with and those responsible held to account. Abuse must not be rewarded!

The numerous complex IT projects hold both opportunities and risks, and require a heightened focus.

There are currently 19 DTI key projects pending, with an impressive volume of around CHF 6.5 billion and long schedules. These complex projects will replace existing systems and move the Federal Administration’s digital transformation forwards. Last year, the SFAO audited a number of these projects: the results show some successes but also a need for action in many areas, in order to bring these projects to fruition. The lacked of skilled employees is also a critical factor leading to delays and additional costs. Measures are needed to tackle this lack of skilled workers – and this is a topic that the SFAO will be including in its 2023 annual programme.

We are under a lot of time pressure to implement our new political funding-related tasks.

The Ordinance on Transparency in Political Funding was passed in August 2022. Since then, the SFAO has been the authority responsible for receiving, checking and publishing reports on the funding of votes and election campaigns. The new provisions will apply for the first time to the elections to the National Council and Council of States in 2023. The SFAO is now setting up an IT platform, clarifying various issues of interpretation and training the political players. It is a Herculean task, being done under severe time pressure, but we will be ready in autumn!

This and other demanding tasks will be with us for the next few years. With over 80 reports published in 2022, numerous media appearances and representation at committee meetings, we are committed to sharing our findings with our stakeholders and taking on the challenges together.

I would like to express my huge thanks to the SFAO staff, whose work and dedication shape the SFAO, and who tackle these challenges as part of their everyday workload. My thanks also go to my predecessors, whose efforts made the SFAO what it is today. In addition, I would like to thank the many internal and external partners who have supported the work of the SFAO and drive development forwards.

“Focus on onsite audits!” This mantra has guided the work programme of the Swiss Federal Audit Office (SFAO) for several years now. Searching for the facts, comparing hypotheses with the actual situation on the ground, checking the information submitted to Parliament or the general public: such is the daily work of the SFAO. We have to work without preconceptions and steer clear of dogma.

These past few years, this has led us to draw some uncomfortable conclusions. The tariff system for outpatient medical services needed to be revised. The financing of the Decommissioning Fund for Nuclear Facilities and Waste Disposal Fund for Nuclear Power Plants was potentially insufficient. More than half of the Federal Council’s dispatches did not reliably estimate the impact of the decisions proposed. The activities of Swiss free ports constituted a threat to Switzerland’s international image. The management of the Confederation’s departments will be effective only if robust cross-departmental controls are put in place, such as in the IT domain. Measures were taken and the situation has improved.

However, these cases serve as examples, as they show that the SFAO performs an oversight function. By addressing these cases before the crisis erupts, it is following another of its key strategies: “intervene as early as possible in order to identify problems in time”.

Federalism is always a very sensitive subject in Switzerland, and the SFAO’s audits are no exception in stirring up emotions on sensitive points. These audits take three forms.

The first type of audit verifies the correct application of federal law, e.g. checks on the calculation of the fiscal equalization between the cantons or the correct application of federal social security legislation. For instance, 18% of requests for supplementary benefits are rejected in generous cantons, compared with 44% in stricter cantons. Is this in line with the intentions of the legislator?

Subsidy audits make up the second group. They are used to verify the correct use of federal funding. Examples are motorways, COVID-19 hardship assistance, or the CHF 2.1 billion that the Confederation will pay for the work on the third Rhone correction (see section 5.A of this annual report).

Finally, we look at the way in which the federal offices manage their relations with the cantons. This is clearly the thorniest area. For the first time, the SFAO is proposing a study on how the Confederation organises the management of its relations with the cantons. To summarise: its relations with Mexico are better organised than those between its federal offices and the canton of Valais (section 8.A).

IT also falls into this third category. There is the challenge of telecommunication networks (section 6.C), but also the difficulty of defining and collecting IT data. After examining the data of the commercial register and the data for road traffic, the SFAO turned to the data of the debt enforcement and bankruptcy register (section 8.B). Throughout the audits, the findings are consistent and similar. In numerous areas, Switzerland finds it hard to consolidate the data collected in the cantons at federal level. This hinders any efforts to introduce the once-only principle, even though this was adopted by Switzerland on 6 October 2017 in Tallinn. But this unfortunate situation is also a hurdle for the Federal Administration, the users of the registers and the prosecution authorities.

There are various reasons for this. The cantonal administrations use different software, data is not defined in the same way across all cantons, data is of poor quality or is incomplete, the federal offices do not receive the data... In 2011, a legal opinion from the Federal Office of Justice showed that, in the area of IT, adopting a constitutional legal framework is the only reasonable path. But the dogma of federalism is alive and kicking. Nobody dares tackle this subject in a rational manner, or address this constitutional task.

In our 2015 annual report, the cartoonist Mix & Remix illustrated the difficulties facing the Federal Roads Office’s (FEDRO) “road licensing information system” IT project, which were partly federalist in nature. This prompted an official reaction from the Conference of Cantonal Governments; in June 2015, it complained to the Federal Council about the impertinence of the cartoon and the SFAO.

Six years passed, and then the pandemic forced its way into the conversation. The saga of the statistics on COVID-19 cases and on the numbers of intensive care patients only served to confirm the SFAO’s disturbing findings regarding the availability and quality of data. And finally, on 26 December 2021, Federal Councillor Guy Parmelin, at that time President of the Swiss Confederation, said to the SonntagsZeitung in an interview specifically dedicated to the pandemic: “We need to learn our lesson from the pandemic. Federalism may be one of the pillars of Switzerland, but it is sometimes cumbersome and complicated, especially in a crisis”. The SFAO shares this opinion.

And now, all that remains is for me to wish the SFAO every success for the future. I will be retiring at the end of August, after 34 years at the SFAO. Thank you to everyone who supports our activities!

Public enterprises come in all sizes and shapes. Often set up to provide a public service, they have evolved over the years, becoming important revenue sources for the communes, cantons and Confederation. In 2018, the Confederation received the tidy sum of CHF 820 million in dividends from Swiss Post, Swisscom and RUAG, despite the law prohibiting the acquisition of equity in profit-making enterprises for investment purposes.

These enterprises represent a huge conflict of interest for the state as shareholder. It is simultaneously owner, regulator, customer and occasionally subsidy provider to these public enterprises. In its excellent report of 8 December 2017, the Federal Council considered privatisation or an open tender process for contracts to provide universal services, in order to ensure free commerce but also because "potential conflicts of interest for the state would be reduced by transferring ownership to the private sector. As the state would no longer have to act as owner, it could focus on its mandate as regulator, supervisor, guarantor of universal services and performer of sovereign tasks". Privatisation would also avoid major financial losses associated with the public status of some of these enterprises. These are resources which could come in useful during a crisis.

As we wait for these broad objectives to be achieved, it remains essential to monitor these enter enterprises’ day-to-day management. In September 2020, this topic was the focus of the work of the Swiss Conference of Audit Offices, which is made up of the Swiss Federal Audit Office’s counterparts in Switzerland’s cantons and large towns. It took the opportunity to issue an initial official statement on behalf of its 30 or so members. This contained a key recommendation: greater monitoring of public enterprises is essential to ensure better coverage of the risks associated with their management. So what have we done and achieved in six years? What priorities have guided us?

The Control Committee of the Council of States also made a statement in the same vein in its report of 12 November 2019 on the PostBus affair: "The Committee welcomes the fact that the SFAO has reviewed its audit strategy with regard to Swiss Post from 2014 onwards. It expects that, in future, the SFAO will apply a standard and homogeneous practice as regards the auditing of enterprises affiliated with the Confederation, and that it will perform the entirety of the mandate conferred on it by law. Over the years to come, the Committee will continue to monitor the progress of the SFAO’s activities in this area."

It is also essential that public enterprises do not attempt to evade audit by the SFAO or supreme supervision by Parliament... Swisscom is a case in point. In 2019, the Obwalden State Councillor Erich Ettlin submitted a motion to amend the Federal Audit Office Act (FAOA). The aim: to ensure that partly privatised federal enterprises be exempted from the Act and that their finances no longer be subject to supervision by the SFAO. This amendment would mainly have concerned Swisscom, but also entities such as Skyguide or Identitas. It was adopted by the Council of States in 2019, but was ultimately shelved after being rejected by the National Council on 30 October 2020.

It might be interesting at this point to look at the arguments put forward by the National Council’s Finance Committee. Firstly, it does not see how the Confederation, as majority shareholder, would derive an advantage over minority shareholders when the SFAO performs an audit. The audits identify problems, and this is beneficial for all concerned, including the minority shareholders. There are also ways to keep them informed as necessary. The second argument centres around the role of Swisscom as a public service, since the company performs tasks of that nature. If the legislator removes the SFAO’s ability to examine the enterprise’s activities, Parliament and the Finance Committees will no longer receive information or explanations from the SFAO. Thirdly, it should be noted that the supreme financial supervision exercised by Parliament is linked to the SFAO’s supervisory powers. Given the linkages between the Parliament Act and the FAOA, limiting the powers of the SFAO would equate to limiting the supreme financial supervision exercised by Parliament.

Similar arguments prompted National Councillors of all political persuasions to support the motion by Thurgau National Councillor Christian Lohr. It demanded an end to the legal exemption that allows the Swiss radio and television broadcaster SSR to avoid financial supervision by the SFAO while receiving an annual subsidy of over CHF 1 billion, financed by the taxpayer. To be continued...

The SFAO staff managed to stay healthy over the course of 2020, while selflessly putting in the time and effort to audit the extraordinary expenditure linked to the COVID-19 crisis. Thank you to him, and to everyone who supports our activities!

The current management team of the Swiss Federal Audit Office (SFAO) has been at the helm for six years now, the duration of a first term of office. As I write this roundup, much has been written and said about the publication of reports, media presence, SFAO resources or the tone of our publications.

These questions of form are important; getting a message across is all about the delivery. They have taken centre stage and attracted a great deal of attention. In this regard, the Finance Delegation took a clear stance on the SFAO’s publication practices, when it declared in its last activity report: "The Finance Delegation believes that, through the measures it has implemented, the SFAO has clearly improved its information and publication practices. (...) The DelFin rejects any further self-restriction of the SFAO in its information autonomy".

The questions of style having thus been addressed, let us turn to the substance. It, too, is important. Performing a perfect audit on a minor topic or ignoring major risks will probably have much more far-reaching consequences for the taxpayer than worrying about the contents of the SFAO’s Twitter feed.

So what have we done and achieved over the last six years? What priorities drove our work?

Our first priority was public corporations. We audited them systematically, with three areas of focus. First, we verified that governance tools were in place and functioning correctly. This was not the case for compliance management at RUAG, nor for risk management at Swiss Post. Happily, the situation has improved in the meantime. Second, we audited nationally important IT systems, such as the IT security in the tunnels of the Swiss Federal Railways (SBB), the national pricing system NOVA or, in the military domain, IT security at RUAG. Finally, relations between the Confederation and its enterprises. The SFAO looked at the merger of civil and military air traffic at Skyguide and the subsidies paid to SBB. Our objective: to ensure that the money set aside for one task was not diverted to another. These audits of federal enterprises naturally provoked a reaction. RUAG attempted, unsuccessfully, to cite a Zurich legal opinion from 2016 to avoid being audited. As for Swisscom: before our first risk management audit was even finished, a parliamentary motion had been launched to prevent us performing another one...

What is the SFAO’s trump card? We are the only body that can legally carry out checks in situ – even abroad – on whether the situation at an enterprise matches that reported to the Federal Council and Parliament. For example, we went to Hungary and Germany for RUAG, and to France and Liechtenstein for Swiss Post. These are what we call “boots on the ground” audits. In recent years, we have also favoured this approach for subsidy audits. These formed our second area of focus: visiting the recipient of federal aid to check what it is doing, whether this is a transport company, a foundation such as Pro Senectute, an NGO operating in Africa or a cheese dairy.

Our third area of focus over the last six years has been financial crime. In 2015, we observed that a number of federal offices and bodies play a key role in the fight against this type of crime. On the basis of a study commissioned from the former prosecutor Paolo Bernasconi, we identified around ten audit topics, ranging from sequestered funds to international legal assistance, from gold trading to the operation of federal courts, and from specific fedpol tasks to the restitution of state assets. In six years, we have built up a picture which has revealed numerous areas for improvement.

Fraud is not the sole preserve of white collar criminals, which is why social security insurance abuses have also been at the forefront of our activities. A risk analysis conducted in conjunction with our cantonal partners revealed the main risks and the areas to audit. After the results achieved in the initial stages proved conclusive, we decided to strengthen our data analysis capabilities. At federal level, this is the most effective way of identifying and combating systemic abuses.

At the request of the Parliamentary Finance Delegation, our fourth area of focus was cross-departmental offices. Over a three-year period, the SFAO systematically audited the federal offices in charge of finance, human resources, IT, risk management, logistics and buildings. The aim was to check that these offices, in addition to issuing directives, are also ensuring their application and have a system for sanctioning non-compliance. This is the only area in which we have not improved. Despite some serious findings by the SFAO, the Federal Council is sticking to department-level management of the Federal Administration without supervision and overall control, and does not want to strengthen the powers of cross-departmental offices. It therefore remains the responsibility of the seven general secretariats to check whether, for example, the IT security rules or procurement procedures are being adhered to in their own departments.

This brings us to the fifth and final point of our mandate: ICT projects. Following the resounding failure of the INSIEME project, a number of measures have been implemented, including regular auditing of key ICT projects by the SFAO. This requires considerable resources but the effort is justified, not just because of the investment volumes but also because of the potential savings linked to these projects – as demonstrated by the DaziT programme for Swiss Customs. This transformation is not just IT-related. It reviews processes and makes things easier for the administration, but also for the economy and users of customs services. However, this is only possible if the will to review procedures exists. The SUPERB programme will be an interesting test case. The transformation of Federal Administration support processes will only be achieved if those responsible for supra-departmental governance grasp the nettle of department-level administration management. Otherwise, several hundred million francs will have been spent without concrete results to show for it.

We will continue to monitor the situation closely and adjust our future activities as risks emerge.

Thank you to all those who support our activities!