Court Of Auditors Audit Of Lech-Zürs Tourism: Financial Situation Extremely Strained
Lech-Zürs Tourismus GmbH, a wholly-owned subsidiary of the municipality of Lech and responsible for marketing the holiday destination, was comprehensively analyzed by the State Audit Office as part of an audit. The focus was on the company's management and organization, as well as its economic situation. The annual result was consistently negative in the audited years, and the balance sheet result deteriorated increasingly. Equity has been completely depleted since the 2020/21 financial year. "With over 30 recommendations, the report highlights several key areas of action, the implementation of which should contribute to the necessary economic stabilization of the company and further professionalization," reports Karin Jenny-Url, Deputy Director.
Clarify responsibility for implementation of mission statement, develop strategy
Lech-Zürs Tourismus GmbH, wholly owned by the municipality of Lech, was founded in 1996 and, integrated into a dense network of stakeholders, assumes key tasks in destination marketing as well as guest and landlord support. In a challenging environment, it has an important coordination role. Its guiding principles are the tourism strategy of the state of Vorarlberg and the municipality's tourism mission statement, which was renewed in 2021. Both the municipality and the holding company are responsible for its implementation.
"However, a concrete allocation of responsibilities is lacking," notes Jenny-Url. Certain strategic objectives have not been consistently pursued. In this context, it is recommended that the mission statement be reviewed and responsibilities defined more clearly. Furthermore, the company should develop the marketing strategy that has so far been missing.
Review and sharpen the control structure of the participation
The Tourism Advisory Board, a broadly composed body of municipal representatives and interest representatives, performs an important function as a supervisory board-like body of the tourism company, with comprehensive authority to issue instructions and monitor management. However, there are uncertainties regarding its role. Reducing the size and depoliticizing the Tourism Advisory Board were discussed in the past but not pursued further. "We are also critical of the merging of operational, controlling, and support functions within the Tourism Advisory Board, and we suggest redefining the board's duties and powers," emphasizes the deputy director. From the State Audit Office's perspective, the company's overall governance needs improvement. To ensure that the municipality can also fulfill its important steering function, the flow of information must be expanded. "The audit committee's annual reports contained extensive information, but it was not possible to determine whether they had been submitted to the municipal council, as required by law," complains Jenny-Url.
Further development in organization and internal control
In recent years, Lech-Zürs Tourismus GmbH has implemented organizational development initiatives, mostly supported by external consulting firms. The State Audit Office recommends implementing the measures initiated in day-to-day operations and pursuing existing approaches. The separation from the long-standing managing director, initiated in 2024, has resulted in significant costs for the company. These costs are largely due to the terms of his contract, which was approved by the municipal council at the time. It is also critical to note that the already considerable financial leeway of the outgoing managing director was even expanded for the newly appointed one. Regulations for transactions requiring approval must therefore be adjusted. In managing the approximately 25 full-time employees, the company implemented measures to promote employee retention in response to the high level of staff turnover. In some cases, it granted generous performance bonuses, among other things. In the future, these should in any case be linked to ambitious goals and their demonstrable achievement.
The State Audit Office recognizes the existence of an organizational manual, the conduct of employee interviews, and existing job descriptions. However, the audit revealed deficiencies in the internal control system. Key principles such as the dual control principle and the separation of duties were partially not met. Central processes were managed by a single entity. Changes are particularly necessary in payroll accounting and payment transactions. Furthermore, the Deputy Director explained that Lech-Zürs Tourismus GmbH is considered a public contracting authority. "Procurement processes must therefore comply with public procurement law." This was not the case in two audited contracts.
The economic development of the tourism company was characterized by difficult conditions, partly as a result of the COVID-19 pandemic. Significant revenue losses from the municipality's tourism taxes, a key source of funding, led to the company's extremely strained financial situation. It completely released its existing reserves of €0.67 million during the audit period. Nevertheless, the accumulated loss – including loss carryforwards from previous years – increased to €2.4 million by the 2022/23 financial year, and the equity ratio to minus 151 percent. "Added to this is a highly indebted municipality as the owner," notes Karin Jenny-Url. The auditors criticized the hesitant implementation of consolidation measures and the lack of structural cost-cutting measures. The company secured the necessary liquidity by taking out loans. The State Audit Office sees budget discipline, closely monitored controlling, and rolling multi-year financial planning as particularly suitable instruments for stabilizing the company's economy. "This also requires close communication between management and the finance department, as well as improved reporting, especially to the Tourism Advisory Board and the municipality," emphasizes Jenny-Url, adding that a generally economical use of resources is required.
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