16. We consider that the
following raises questions of political importance. We make no
recommendation for its further consideration, but suggest it would
be relevant to a debate covering the Common Agricultural Policy
price proposals for 1997-98:-
MINISTRY OF AGRICULTURE, FISHERIES AND FOOD
(17907)
5617/97
ECA 1/97
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Special Report No. 1/97 on the Commission Decision of 10 April 1996 and 20 November 1996 on the clearance of accounts 1992 and certain expenditure for 1993.
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Legal base:
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Article 188c (4), second sub-paragraph.
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Background
16.1 The procedure for
the clearance of accounts requires the Commission to audit Member
States' accounts and make financial corrections before clearing
them. Such corrections are known as disallowance and relate to
irregularities or control weaknesses. Member States pay to the
Community the sums disallowed . Following clearance by the Commission,
the Commission's own accounts are required to be discharged by
the European Parliament. In cases where a Member State objects
to the disallowance, the matter is referred to the Conciliation
Body (an independent review body) and, following its ruling, disallowances
can be amended or confirmed. The process is a lengthy one and
the April 1996 clearance Decision excluded a number of cases still
before the Conciliation Body, requiring a supplementary Decision
in December 1996 which disallowed a further 70 million ECU (£57
million)[38].
The report by the European
Court of Auditors (ECA)
16.2 The report of the
ECA concentrates on the effectiveness of the Commission's clearance
mechanisms. It does not go into individual accounts but looks
at the need to improve, and make more transparent, the way in
which the Commission operates.
16.3 It considers the
staff resources available, and points out that a maximum of 40
staff were available to comment on more than 30,000 million ECU
of expenditure incurred in 12 Member States. The report says
that the work programme submitted to the EAGGF Committee stated
that the number of staff available was insufficient to ensure
coverage of all significant measures, but there was no redeployment
of staff to cover deficiencies. In its resolution on the discharge
of EAGGF expenditure for 1991, the European Parliament agreed
that there was a need for more staff and called for the redeployment
of 15 extra staff. It said that, if redeployment was not possible,
the Commission should come forward to the budgetary authority
with an appropriate proposal. This has not happened.
16.4 The report considers
whether the limited staff available were deployed on the appropriate
areas, and makes certain criticisms. It says that, in a high
risk area such as export refunds, the audits for the six Member
States with the highest level of refunds did not cover supporting
documentation in the paying agency. The audit in the oils and
fats sector for Italy concentrated on olive oil and sunflower
even though more money was spend on soya. In Germany and the
United Kingdom, the audit of the oils and fats measure did not
cover peas, beans and rape-seed but only the relatively less expensive
dried fodder régime. The report is particularly concerned
with need for proper audit in the milk sector, commenting that
resources were engaged in the follow-up of the consequences of
the Council Decision on disallowance in Italy, Spain and Greece
following their failure to observe the requirements on milk quotas.
No programme identifying audit priorities for the 1992 expenditure
was prepared.
16.5 The ECA says the
work programme was therefore carried out on a somewhat ad hoc
basis, and that arbitrary decisions were taken on redeployment
of resources. The report says that during the first mission to
Ireland it was impossible to carry out a satisfactory examination
of beef export refund files because of the disarray in the supporting
documents. A second mission a year later encountered the same
problem, but nevertheless Ireland received more favourable treatment
when clearing the accounts than other countries whose records
were in better order. Assurances of improvement appear to have
been accepted without full examination. The report also comments
on the lack of follow-up of deficiencies identified in the 1991
clearance of accounts, particularly in relation to olive oil in
Greece.
16.6 Commenting on working
methods, the report draws attention to the significant delay between
a mission being carried out and the report to the Member State
concerned, leading to errors and omissions.
16.7 The conciliation
procedure was available to Member States for the first time for
the clearance of accounts for the year 1992. It is available
when the Commission suggests disallowance exceeding 0.5 million
ECU, or more than 25% of a Member State's total annual expenditure
for the particular budget line. 34 cases were submitted, of which
6 were withdrawn before consideration. The report tabulates the
results of the 28 cases actually considered. Inevitably, the
conciliation procedure has caused additional delay; three cases
are still outstanding and will need to be dealt with as part of
the 1993 clearance Decision.
16.8 The Commission uses
three general types of correction, flat rate, ad hoc and
routine accounting corrections. On flat rate corrections, the
Commission has established an internal grid leading to flat rate
corrections of 2%, 5% or 10%, depending on the seriousness of
the problem, and can take into account the effectiveness of remedial
action. Higher rates can be applied in exceptional circumstances.
The ECA that considers the flat rate corrections are applied
inconsistently, and give the benefit of the doubt to countries'
assurances of improvements even when these have not been tested.
A disallowance can be rescinded even when remedial action has
been taken long after the year under examination. This appears
contrary to the conclusions of the European Parliament, which
deplored the practice of assessing the rates of financial corrections
on the basis of non-objective evidence. Such problems arose in:
a) olive oil
production aid to Greece;
b) cotton production
aid to Greece;
c) beef public
storage in Germany, Italy, France and the United Kingdom;
d) withdrawal
of peaches in Greece and the grubbing up of vines in Greece, where
weaknesses still persist even though no correction was proposed
for 1992 or 1993.
16.9 The report also
draws attention to the overruling of the Commission's Financial
Controller in relation to a disallowance of expenditure in Ireland
on storing intervention beef.
16.10 In its response,
the Commission points to the shortage of resources and supports
the use of flat rate corrections. It also accepts the need for
better liaison between the EAGGF and the Financial Controller.
The Government's view
16.11 In his Explanatory
Memorandum of 4 March, the Minister of State at the Ministry of
Agriculture, Fisheries and Food (Mr Baldry) welcomes the report
and says:
"On the detailed
points, it is unsatisfactory for 1992 accounts still to be undischarged
in 1997. Although the system was changed at the start of the
1996 year, and now aims for clearance in seven months, the fact
remains that accounts for previous years are still uncleared.
The Government welcomes the action now in hand to redeploy resources
to strengthen the EAGGF and also the introduction of the Conciliation
procedure (the 1992 accounts are the first for which it was available).
As the ECA says, it can cause further delays, but it also provides
a further incentive for the Commission to work properly, and it
provides a forum to try and resolve disputes between the Commission
and Member States objectively. These issues can be looked at
further when the new arrangements are reviewed after three years.
"The Government
will continue to press for improved financial procedures within
the Community. The UK has a generally good record on disallowance,
but like all other Member States, the UK has encountered problems
and is constantly striving to improve and to use financial control
resources as effectively as possible."
Conclusion
16.12 The report of
the European Court of Auditors concentrates on areas where funds
cannot be properly accounted for. It draws attention to underlying
weaknesses in the way in which the Commission draws up and carries
out its audit and also to the apparently arbitrary nature of its
disallowance and reinstatements. It is obviously unsatisfactory,
as the Minister says, that these accounts have not been cleared
after five years. The new system of conciliation has clearly
encountered teething problems, causing further delays. We hope
that the Commission will seek adequate resources to do the necessary
checking so that ad hoc and arbitrary decisions can be
avoided.
16.13 We consider
the report raises questions of political importance which would
be best addressed in the context of a debate on the Floor of the
House on the annual CAP Price Fixing.
38 At £1 = 1.2313 ECU. Back
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