Audit confirms army was overcharged by Swiss defence firm

The over-billing concerned the repair and maintenance contract for helicopters and planes. Keystone

The Swiss state-owned arms manufacturer RUAG has overcharged the army by inflating profit margins, according to a government audit report. RUAG contests the findings.  

On Friday, the Federal Audit Office released a summaryExternal link of its confidential report that includes claims that RUAG’s Aviation department enjoyed profit margins of 11.6-14.6% between 2013 and 2017. This was despite a ceiling of 8% agreed with the federal government.   

Some of the other examples of inflated costs cited include charging profit margins twice on spare parts procured from the US-based Mecanex Group supplier. However, no irregularities were found with fulfilling contracts. RUAG benefited from around CHF200 million ($204 million) in orders from the defence ministry last year.   

The inflated profit margins cited in the audit summary are much less than the figures published in the media last year. The Ostschweiz am Sonntag and the Zentralschweiz am Sonntag newspapers accused RUAG of profiting to the tune of 30 to 35%, which would have netted it an extra CHF40 million.   

In a statementExternal link, RUAG expressed surprise at the audit findings. Referring to its ongoing 2001 agreement with the Swiss Department of Defence, Civil Protection and Sport, RUAG said it allocated overheads equally across all customers according to the individual business units’ share of sales.   

It said the federal audit office, meanwhile, had based its audit on a “new allocation formula for overheads and, on this basis, infers a higher profit margin”.   

The arms manufacturer said it was nevertheless ready to “consider any future adjustments” to the agreement but added that “any changes need to be carefully thought through”.  

RUAG is a technology group established from the defence companies owned by the Swiss government and has been a private stock corporation since 1999. However, the federal government is still its sole shareholder. The holding company is based in Bern.