2. We have given further
consideration to the first of the following on the basis of further
information from the Government. We maintain our opinion[6]
that it raises questions of legal and political importance, and
continue to make no recommendation for its further consideration
at this stage. We consider that the second of the following raises
questions of political importance, but make no recommendation
for its further consideration at this stage:-
DEPARTMENT OF NATIONAL HERITAGE
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(17767)
12796/96
COM(96)635
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Amended draft Decision on a First Multi-Annual Programme to assist European Tourism PHILOXENIA (1997-2000).
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Legal base:
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Article 235; unanimity. Article 3t is relevant.
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H M TREASURY
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(17859)
11833/96
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European Court of Auditors Special Report No. 3/96 on tourist policy and the promotion of tourism, and the Commission's response.
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Legal base:
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Article 188c(4).
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Introduction
2.1 We reported in January
on an amended draft Decision on the PHILOXENIA programme. The
Government expressed a number of doubts about the appropriateness
of the proposal and whether issues of subsidiarity had been properly
addressed. We have before us today the Court of Auditors Special
Report on tourist policy and the promotion of tourism, which covers
some of the same issues.
The Court of Auditors Special
Report
2.2 In this Special Report
the European Court of Auditors (ECA) highlights numerous irregularities
and deficiencies in the Commission's financial management of expenditure
on tourism. The Commission's response is annexed to the report.
2.3 Since October 1994
the ECA has been examining Commission files on tourism matters
on which fraud is suspected and on which police investigations
have been initiated. So as not to hinder these proceedings, the
ECA has refrained from comment on the content of the files, but
it has decided to go ahead with this report, pointing out the
inadequacies in the management and control systems in the context
of which the current situation arose, analysing the measures taken
to strengthen these and reporting its latest audit findings.
2.4 According to the
report, the irregularities mainly involved direct measures
in favour of tourism so these are given particular attention,
though the report also covers indirect measures.
Direct measures
2.5 These are specific
measures provided for in the general budget by appropriations
dedicated to tourism policies. In his Explanatory Memorandum (dated
19 February 1997) the Exchequer Secretary to the Treasury (Mr.
Oppenheim) notes that four have been undertaken at a total cost
up to the end of 1995 of 34 million ECU (£25 million)[7].
-- the
European Year of Tourism (1990) - 7.74 million ECU (£5.7
million);
-- the
promotion of third countries as destinations for European tourists
- 0.75 million ECU (£0.55 million);
-- an
Action Plan in favour of tourism[8]
- 11.2 million ECU (£8.3 million); and
-- other
measures.
Indirect measures
2.6 These are measures
indirectly linked to tourism, or in which tourism plays a part.
They are so varied that the report says that it is not possible
to identify the exact share represented by tourism-related expenditure,
but the ECA estimates the amount to be in the order of 25 million
ECU (£18 million) per annum.
2.7 The Minister notes
that:
"A further 4.7
million ECU - £3.5 million - was appropriated for payments
in 1996 in respect of prior-year financial commitments from the
Tourism Action Plan but there are no appropriations in the budget
for further financial commitments on direct measures on tourism,
and no policy approvals for a new Action Plan. The lack of a
specific legal base for direct spending on tourism means that
Article 235 of the Treaty (which requires unanimity in the Council)
must be used to sanction it. The question of establishing a Title
for such measures is being considered following a report by the
Commission to the 1996 Inter-Governmental Conference, as called
for by Declaration No. 1 to the Treaty[9].
The Commission is proposing a new Tourism programme, called Philoxenia,
to run from 1997 to 2000[10]."
Summary of the report
2.8 Summarising the report,
the Minister says:
"The ECA recalls
(para 16) that it produced a special report on the European Year
of Tourism in 1992[11],
in response to concerns in the European Parliament that there
were irregularities in the Commission's expenditure. It made
a number of criticisms of financial management (para 17). In
paras 30 to 48 of this report the ECA revisits the subject of
the Year of Tourism (EYT) in the light of fraud investigations
which have since come to its attention. Paragraphs 49 to 68 report
on the Tourism Action Plan; and paragraphs 69 to 92 examine the
co-ordination of Community measures in the field of tourism".
Fraud investigations
2.9 The Minister comments
that "the most significant sections of this new special report
by the ECA concern the co-ordination of fraud investigations (paragraphs
20 to 29)". He comments on the report's coverage of these
as follows:
"The direct
expenditure on Tourism was managed by the Tourism Unit within
Directorate General XXIII of the Commission. Although the replies
of the Commission to this report reveal differences with the ECA
about the precise chronology and the significance of particular
events, it is clear that by 1993 there was sufficient concern
within the Commission about allegations and suspicions of fraud
involving officials in the Tourism Unit for there to be internal
investigations by DG XXIII and DG XX (Financial Control.
"In March 1994
the Head of the Unit was transferred, and in July 1994 the Commission's
anti-fraud unit (UCLAF) began to compile a case for investigation
by national police authorities. By August 1994 the former Head
of the Tourism Unit was removed from office in the Commission
and the temporary contract of another member of staff was terminated.
In December 1994 UCLAF's information was passed to the police
authorities in France and Belgium, and in March 1995 the Greek
police were also asked to start inquiries.
"In March 1995
the Commission agreed to a request from Belgian authorities to
lift immunities of certain Commission officials to allow investigations
to continue, and Belgian magistrates held hearings and conducted
searches on Commission premises. In late 1995/early 1996 several
people were arrested in France and three persons in Belgium.
"In the meantime
internal investigations had led to the blocking of certain payments
and the issue of recovery orders for other payments originating
in the Unit.
"The ECA refrains
from commenting on the detail of the allegations involved, so
as not to disrupt inquiries (para 20). But it is critical of
the Commission's handling in two major respects:
-- the
ECA believes that the Commission was too slow off the mark (para
93). It had been somewhat dismissive of the concerns raised in
the ECA's 1992 special report (para 19); insufficient attention
had been given to written allegations of irregularity received
in June 1992 (para 21); and UCLAF should have been called in earlier
(para 23); and
-- the
ECA believes that it should have been informed earlier (para 94).
It only found out about the investigations in the course of an
on-the-spot check in September 1994, after which it reached agreement
in October 1994 for access to the Commission's files (paras 20
& 29). Since then it has been contributing to the DG XX and
UCLAF investigations (para 29).
"In its reply
the Commission rejects the suggestion that the accusations received
in June 1992 should have received more serious attention, and
distinguishes between the matters raised by those accusations
and other information which did in due course lead to internal
investigations. The Commission offers corrections to the ECA's
account of how liaison amongst DG XXIII, DG XX and DG IX (Personnel)
was handled; and in general it places the start of reasonable
grounds for serious concern later in 1993. Neither the ECA's
version of the episode, nor the Commission's comments on it, are
very clear: apparently because of caution about being too specific
on matters still the subject of legal investigations."
The European Year of Tourism
(EYT) (1990)
2.10 In 1990 the European
Parliament expressed concern about possible irregularities connected
with the EYT and asked the ECA for an Opinion. The ECA delivered
a Special Report on 30 September 1992. This called into question
the legality and regularity of certain items of expenditure as
well as the soundness of budgetary management.
2.11 In 1994, following
a Resolution of the European Parliament on the budgetary and financial
implementation of the EYT[12],
the ECA carried out a further audit. It concentrated on the Commission's
management and on measures financed exclusively from the general
budget. These revealed that a number of problems noted in 1992
persisted. It also carried out on-the-spot checks of co-financed
projects, starting with France, the Member State that had received
the most significant share (about 25% of the budget of 2.5 million
ECU (£1.8 million)).
2.12 The Minister summarises
the report's findings as follows:
"It is critical
of France's controls over the bodies set up to manage the projects
being co-financed with the Community, the lack of evidence about
expenditure and lack of attention to it by DG XXIII, discrepancies
in contracts, lack of care over financial authorisations, and
a conflict of interest affecting a Commission official which was
ignored by those who should have noticed it (paras 33 to 41).
It is not clear to what extent these observations relate to the
matters which the French legal authorities were subsequently invited
to investigate. The ECA is also critical of errors in the recovery
procedures initiated by DG XXIII once irregularities had been
identified (paras 42 to 48)."
2.13 The conflict of
interest concerned a "detached national expert" who,
before and during the period he was working in DG XXIII's "Tourism"
unit, also worked as Permanent Secretary of a national federation
in the field of tourism, and as a member of the working party
of the National Committee.
2.14 In its reply the
Commission says:
"The difficulties
encountered by the Commission in the administration of the EYT
and the shortcomings identified in that context were set out fully
in the Court's Special Report 4/92; the criticisms are acknowledged
by the Commission. The new element emerging from the Court's
latest observations is indications of serious irregularities which
are currently under investigation by national judicial authorities.
The Commission is following the situation and will ensure that
the Community's financial interests are fully protected.
"In relation
to the remaining actions taken under the European Year of Tourism
the Commission has decided to review all the projects concerned,
with the object of providing the necessary reassurance that Community
funds have been disbursed in accordance with the prescribed rules
and procedures. This will involve a re-examination of some 200
projects in 11 Member States."
2.15 In relation to the
national expert, the Commission says that "his attention
was drawn specifically to the rules in relation to conflict of
interest."
2.16 In its criticism
of the lack of control by the French, the report says that the
competent departments (the Ministry responsible for tourism, the
National Committee and the Association for the Promotion of the
EYT (APAET)) did not keep the accounts and files for 5 years,
contrary to Community legislation.
"Furthermore,
the APAET did not inform the Commission of the disappearance of
all the invoices and accounting documents concerning the EYT.
According to a letter sent by the Association to the Ministry
responsible for Tourism, the police refused to allow it to make
a declaration of loss/theft because of the lack of evidence and
the fact that there had been no burglary."
The Tourism Action Plan
2.17 The ECA began in
late 1995 to audit the direct measures carried out under this
3 year plan. Its report notes that budgetary authority was given
for 21.7 million ECU (£16 million) for the plan, starting
on 1 January 1993. Measures to increase Europe's appeal as a
destination for tourists from distant countries were financed,
as well as studies and pilot projects regarding rural, cultural,
educational and environmental tourism.
2.18 As the Minister
points out:
"The ECA audit
identifies serious weaknesses in the handling of projects by the
Tourism Unit and the internal control procedures in DG XXIII,
a lack of co-ordination amongst various tourism measures, and
specific problems concerning projects co-financed between Member
States and the European Regional Development Fund:-
-- there
were irregularities in the conduct of bidding for project work
(para 57);
-- evaluations
by the Commission of the tourism programme were late and the letting
of the contract to external consultants was itself a history of
errors (paras 59 to 62);
-- payments
were often made without sufficient evidence to justify them (paras
67, 68, 79 and 81);
-- and
there were frequent problems and irregularities in implementing
projects on the ground (paras 83 to 92)."
He comments that this
overall picture confirms the impressions given in the report by
external consultants, Price Waterhouse, when they evaluated the
first two years of the Plan[13].
2.19 In its reply the
Commission notes that it initiated the process which led
to the judicial investigation. It also says in reply to criticism
about its role of co-ordination that:
"Given the diversity
and complexity of tourism, effective co-ordination is a major
challenge in terms of manpower resources, organisational structures
and technical skills required. The Commission agrees that co-ordination
of tourism-related actions within its Services has not been entirely
satisfactory."
It says that it intends
further to develop techniques for evaluating measures affecting
tourism. It does not explain why its third annual report on Community
measures affecting tourism, which should have been submitted in
July 1995, has still not been adopted by the Commission.
2.20 There is one specific
reference to the UK in the report (paragraph 82), where weaknesses
in accounting for expenditure by the Northern Ireland Tourist
Board led to suspension of payments. The Commission reply says
that the UK National Audit Office is examining the Board. In
fact, according to the Minister the examination is by the Northern
Ireland Audit Office.
The Government's view
2.21 In addition to the
comments quoted above, the Minister comments in general on this
document:
"The Government
notes the further observations of the ECA about the management
of tourism measures, and the weaknesses which they expose. The
report by Price Waterhouse depicted the 1993-95 Action Plan as
an incoherent and incomplete collection of fragmented policies
which lacked overall consistency, albeit the merits of the measures
were arguable if viewed in isolation. There was confusion about
how studies and projects were to contribute to policy objectives.
The plan was overambitious for the resources available, and lacked
continuity from one year to the next. In the light of this experience
the Government believes that experimentation with the further
Action Plan is unlikely to represent good value for money. Nothing
in the ECA's latest report gives grounds for any greater confidence.
"The Government
notes that many of the management weaknesses revealed by these
studies of tourism policies are not uncommon amongst the ECA's
persistent criticisms of Community expenditure projects. The
Government will continue to press for early evidence of tangible
results from the Commission's Sound and Efficient Management (SEM)
2000 initiative, launched in 1995 to improve the culture and practice
of resource management in the Commission.
"The allegations
of fraud involving Commission officials are, however, highly unusual.
As these matters are sub judice it would be inappropriate
to comment upon them beyond noting that, if the suspicions and
allegations were found to be justified, the situation they describe
would be deplorable and would undoubtably have contributed to
the problems which the report identifies. The Government notes
the actions taken by the Commission to investigate the position,
including the waiving of immunities to allow an investigation
by national police authorities. It is important that the ECA
and the Commission should reach a working agreement about the
circumstances in which information relevant to suspicions of fraud
will pass between them, respecting the role of the ECA as an auditor
of the legality and regularity of the Commission's expenditure
but recognising that primary responsibility for detection and
investigation of fraud lies elsewhere.
"The Government
hopes that police investigations may have led to definite conclusions
by the time that this special report is considered by the budgetary
authority in 1998. It is essential that lessons be learned from
this episode, in particular about strengthening management systems
to rely more on systematic precautions against financial irregularity
and less on ad hoc improvisations which may create temptations
and opportunities for abuse of Community resources."
2.22 On the financial
implications the Minister comments:
"The Special
Report has no direct financial consequences. As with all reports
by the ECA the Commission acts upon the information to review
payments which have been made and to seek recovery of unjustified
amounts where appropriate. To the extent that the report shows
that money has been spent unwisely it implies that, within the
budget, the sums involved could have been deployed better elsewhere
consistent with the Financial Perspective; or that, in principle,
the budget could have been set at a lower level."
Our previous Reports
2.23 On 3 July 1996 we
reported on a Commission report3 which examined the
case for providing three fields of activity - civil protection,
energy and tourism - with specific legal bases. We concluded
that the Commission had not made a strong case. We also reported,
on 3 July 1996, on the Commission report on the evaluation
of the Community action plan to assist tourism (1993-94) and
the Draft Decision on the first multi-annual programme to assist
European tourism (1997-2000) PHILOXENIA4. We judged
these three documents to be of legal and political importance,
and did not clear them.
Conclusion
2.24 Regardless of
the constraints imposed by the need not to hinder police inquiries,
the Court of Auditors special report raises questions of undoubted
political importance. We do not recommend another debate at this
stage, but may do so before a decision is taken at the Inter-Governmental
Conference. Meanwhile we seek the Government's views on the following
issues.
2.25 We are principally
concerned about the question of the suitability of the Commission
to administer funds directed at tourism, and the degree of competence
which should be given to it in this area. In the debate on the
Commission Green Paper on The role of the Union in the field
of tourism[14]
in European Standing Committee B on 25 October 1995, the Minister
of State, Department of National Heritage (Mr. Sproat) said:
"The most
worthwhile role that we see for the tourism unit within the Commission
is for it to become much more effective in ensuring that the effects
on tourism of European Union activities and proposals are fully
recognised and the measures that might damage the tourism industry
are avoided."
2.26 This report demonstrates
that the Commission's involvement with tourism goes much further
than that. In her EM (dated 22 January) on the amended draft
Decision on PHILOXENIA, the Secretary of State for National
Heritage (Mrs. Bottomley) said that the Government was sceptical
about the promotion of Europe as a tourist destination and sceptical
that the Commission was best placed to undertake such a task.
2.27 It is not possible
at this stage to say how many of the failings of the Commission
are due to mismanagement and how many to deliberately fraudulent
behaviour. It is also too early to predict the effect of steps
taken to rectify the situation, including the SEM 2000 initiative.
Nevertheless, it would be of interest to know if the Government
is confident that the Commission can become competent to administer
funds directed towards tourism or if it believes that this is
an industry which should not be supported by funds disbursed at
EU level? We quote in paragraph 2.18 above the Commission's own
views on the challenge presented. What are the views of the other
Member States?
2.28 As an industry
which the Commission estimates represents, on average, 5.5% of
EU GDP and 6% of all employment, is it not inevitable that the
tourist industry will be a recipient of Community funds, in one
form of another? Does the Government believe that transparency
and administrative control would be improved if expenditure on
tourism were concentrated to a greater extent under one budget
heading and provided with a legal base?
2.29 Might the establishment
of a legal base encourage increased EC activity in an area in
which the UK currently opposes any extension of Community competence?
2.30 How can National
Parliaments ensure that they are given the opportunity to make
their views known on projects promoted by the European Parliament,
which they might wish to question, such as the use of Community
funds, however modest, to encourage EU citizens to take holidays
outside the EU? If the justification for such expenditure is
development, then why was it not proposed under the appropriate
aid budgetary provision? Which third countries benefited from
these funds?
2.31 In the light
of this report, is the Government satisfied with the existing
constraints on expenditure by the Commission for which there is
no legal base? Is it also satisfied that, when a part of the
Commission which has not been responsible for spending on any
scale is given such a responsibility, it is provided with the
necessary expertise and adequate resources to do so, both at the
technical and administrative levels?
2.32 We understand
that on 11 July 1994 the ECOFIN Council concluded that every special
report from the Court of Auditors should be thoroughly examined
by the relevant Working Group. We ask the Government to ensure
that the Working Group in this case reports on the wider issue
of how funds for European Years and other short term projects
are allocated and administered.
2.33 We are aware
that these issues are the responsibility of more than one Government
department, and we ask to be provided with a consolidated response.
In the meantime, we are not clearing the documents.
6 (17767) 12796/96; see HC 36-xi (1996-97), paragraph 6 (29 January 1997). Back
7 The rate of exchange of 1 ECU = £0.7373 is used throughout these paragraphs. Back
8 (13662) 5437/92; see HC 79-i (1992-93), paragraph 57 (17 June 1992). We reported then that the UK was pressing for a budget considerably less than the 20 million ECU (about £14 million) which the Commission had indicated informally that it would propose for the Action Plan. Back
9 (17151) 3838/96; see HC 51-xxiv (1995-96), paragraph 2 (3 July 1996). Back
10 (17767) 12796/96; see HC 36-xi (1996-97), paragraph 6 (29 January 1997). Back
11 ECA Special Report No. 4/92 on expenditure relating to the EYT was delivered on 30 September 1992, according to this report. It was not deposited. We are taking steps to obtain it. Back
12 OJ No. C 128, 9.5.1994, p.340. Back
13 (17229) 7472/96; see HC51-xxiv (1995-96), paragraph 4 (3 July 1996). Back
14 Official Report, European Standing Committee B, 25 October 1995. Back
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