Examination of witness (Questions 229
- 239)
TUESDAY 27 JANUARY 1998 (AM)
MR HARM
ROZEMA
Chairman
229. Thank you very much for coming all
the way from Luxembourg to help us this morning. We are very anxious
to talk to you in your role with the European Court of Auditors.
Some of us have become very familiar with the work of the European
Court of Auditors and admire the work which you do. In this Committee
we are focusing entirely on European aid and European development
funds. We are anxious to know exactly how you can help us find
what they are doing with our money and whether they are using
it properly and effectively. We hope that you are going to be
able to tell us that you can be our informant. We hope that you
can be in strong contact with us for the whole of the time this
Committee is in existence because we shall need your help to find
out what is going on. I understand from our Clerk that you thought
it might be helpful to make a short statement to begin with and
then we have some questions we should like to ask you.
(Mr Rozema) That is correct. Thank you for your
invitation. You mentioned that some of the members are familiar
with the Court of Auditors and its work. It might, however, be
useful to give a very short introduction about the European Court
of Auditors' role. In parallel to the Court's obligations and
duties for the European budget the Court also have an obligation
and a duty to audit the expenditure of the European Development
Fund and legal and regularity aspects and the Court must also
try to find out whether the expenditure is complete. The Court
also expresses an opinion as to whether the financial management
was sound; in other words whether there has been value for money.
In that respect we do audit the efficiency and effectiveness of
the use of the funds. What is important when I talk about the
European Development Fund is that we audit revenue and expenditure,
that means we audit the European Development Fund which is created
by the Lomé Convention. What we do not audit is the Convention
as such which is a political document which states the overall
objectives of the policy and a number of instruments. We would
take the Convention as a framework, as a given policy and in that
context we would audit the European Development Fund. Another
point I would make is the following. The Court in the past has
made quite a lot of observations about the use of the EDF money
and will certainly continue to do so. In broad terms there have
been five or six large problems in the past: there is lack of
coordination; weaknesses in preparation of programmes and projects,
in targeting and formulation of objectives, weaknesses in measurement
of impact and sustainability; problems with the transparency and
monitoring of actions; problems with capacity building and institution
building in the beneficiary countries and transfer of knowledge
through technical assistance; problems in maintaining conditionality
in those cases where it applies. In this respect I should like
to underline that these types of problems are certainly EDF problems
but are general rather than specific problems. I sincerely believe
that most of the donors in development aid are confronted with
exactly the same problems and are in many cases not much better
than the European Development Fund.
230. That is an interesting list and, as
you say, it is a familiar one. It depends on how far they fail
to succeed under each of those headings which is important and
how far they do succeed. This morning we are concerned only with
the Lomé Convention and I understand your political acceptance
of that political document. Under it quite a large figure gets
disbursed every year under one of Lomé I, II, III or IV.
I hope we have disbursed it now?
(Mr Rozema) I have to translate Lomé Convention
numbering into European Development Fund numbering. There is always
confusion. The fifth European Development Fund, which is Lomé
II has been disbursed entirely. The sixth one, which is Lomé
III, has not yet been completely disbursed. The the seventh one,
which is the first part of Lomé IV, has been disbursed
up to about 50 per cent. You know that the eighth EDF under the
second part of Lomé has not yet been ratified.
231. How do you select those items in the
Lomé programme which you decide to audit and what have
you audited?
(Mr Rozema) There have been different approaches
by the Court of Auditors. Up to about 1990, about seven or eight
years ago, the Court's audit approach to Lomé for the EDF
audit was based on a country approach which meant that the Court
tried to examine in rotation every five years all the ACP countries.
At the time it was not too difficult because then there were about
40 to 50 ACP states; nowadays there are 71 so it would be much
more difficult to do it now. At a given moment we found out that
by focusing on countries, although one obtained a very good impression
about how the aid was managed in certain countries, the observations
and syntheses we could make and the conclusions we could draw
were pretty scattered. We looked at a certain number of ACP countries
in a certain year and then we looked at agriculture projects,
infrastructure projects, communications, health, education, everything
and tried to do a representative selection in such a way that
all the types of interventions were more or less covered. It was
a very difficult approach in terms of syntheses which you could
draw. In the 1990s the approach was changed and was focused towards
themes. In that context we did specific audits on, let us say,
"Stabex" or on regional cooperation or on structural
adjustment or on tender procedures, ie. some very specific themes
in the context of which projects and programmes were selected
and also visited on the spot in ACP countries. The audits are
usually done in Brussels at the headquarters of the Commission
supported by audits on the spot in the ACP countries. Recently,
when we made an analysis of which ACP countries were covered by
this approach we found out that because of certain financial importances
some ACP countries were frequently visited and other countries
were not visited at all. We are now working on having a mixed
approach which would mean that our basic approach would be a kind
of country approach in combination with a thematic approach. The
selection of items we will do would be based on the criterion
of volume of the money spent in a certain area but also the political
relevance at a certain moment. To give an example, the health
sector in terms of volume is not so extremely important but one
might believe that it should be more important. It is a politically
sensitive item and that could be a very good reason to select
such an item for specific audit.
232. How long does it take and how many
people to do an audit? How many people do you employ to do this
work?
(Mr Rozema) In the sector responsible for the
EDF audit we have ten staff. If we focused on a certain theme,
it could take four or five man-years; so it would easily take
up the time of half of our staff for half a year. There can be
some quick or easy ones but that is a representative one. If one
visited a country, just one ACP state, the whole audit would take
something between one and one and a half man-years. Let us say
it could mean that two to three people would be busy for about
three to four months each.
233. Do you then publish a report?
(Mr Rozema) We publish a number of reports. One
type of report is the annual report in which we would publish
certain findings and an annual report has a certain rhythm and
is usually published in November of any year. Apart from that
we could and we have published special reports. I have to say
that in terms of content a special report and an annual report
are not so different. One could say that in many cases the type
of report in an annual report is almost a mini special report
in the sense of the types of subject. Apart from that, since 1994
we publish a report on the financial audit which leads to the
statement of assurance which is a typical financial audit with
a typical financial audit certificate.
Ann Clwyd
234. How many on-the-spot audits do you
carry out each year?
(Mr Rozema) It varies but we have had and will
have this year four to five on-the-spot audits. An on-the-spot
audit means that we organise a mission to the ACP countries with
a team of between two and four staff. Depending on the subject,
we would try to cover at least two ACP states for each of such
an audit. It is possible, depending on the subject, that one tries
to cover three or four but usually I would say it would be two
states.
Mr Grant
235. Have you found any evidence of corruption
or is there evidence of bad management or shortcomings or what?
What do you normally find?
(Mr Rozema) The answer to the first question is
a simple, blunt, no. I should like to say something about it.
First, one has to distinguish between corruption by Commission
officials and corruption in the ACP states. I have not found any
evidence of corruption by officials and I must say as an auditor
that we have not found any evidence—we may believe that
there is but we have not found any evidence—of corruption
in the execution of work. The reason we did not find it is that
the principle objective not only the Court of Auditor but auditors
in general is not to find fraud or corruption. We do not turn
a blind eye to it but that is not our objective. If it were our
objective to find corruption, it would mean an extremely time-consuming
and extensive type of inquiry where I even doubt we would have
the powers to do that because it would be very close to investigation
powers. To give an example, if one would like to know whether,
in the context of constructing a road, corruption had taken place,
I believe that one of the ways to find out would be to go to the
company or companies involved in the construction of the road
and do an extensive audit of their books. Only then could you
really, really find the evidence. Another thing would be to do
a complete police investigation and go to all kinds of parties
and try to find out whether they had received money or spent money
on certain bank accounts and so on. When you ask me whether we
have found any evidence of corruption and I bluntly reply no,
it does not mean there is none. We believe that there is certainly
corruption but I am simply not able to quantify whether it would
be five per cent or 20 per cent or 25 per cent. I do not have
the slightest idea.
236. Do you not think that you should at
least have one serious investigation every so many years, including
looking at the books and everything, just to ensure that the people
know that you are looking at the books? Could you not do an in-depth
investigation say once every few years looking for corruption?
(Mr Rozema) I am not quite sure. I see the importance
of the question but I am not quite sure whether the Court of Auditors
or myself would like to have that obligation, or even power, even
if we only did it every few years. In another department I have
been responsible for the audit of agricultural expenditure. Then
we carried out inquiries into export funds paid to private companies.
The time needed to examine just one company was enormous. If you
say you would like on a certain road construction or a selection
of roads to do an examination of the books of that company—never
mind the powers; let us assume we had the powers—I believe
it would easily take six to 12 man-months to audit such a company
to try to find out whether or not there had been corruption. Even
then, even if you have indications or you sincerely believe there
has been corruption, there is no guarantee that you will be successful
in finding it in the books. However, it is a very relevant question
but it is a very, very difficult one.
Mr Khabra
237. Did you find any mismanagement or wastage
where large sums of money had been wasted in any of those countries?
(Mr Rozema) Certain types of mismanagement, yes
and no. We come to a different kind of problem. There is the philosophy,
especially in the Lomé Convention, of co-management. The
Commission, together with the ACP country, are jointly responsible
for decisionmaking, for the implementation, for everything of
the projects and the programmes. However, in practice, quite a
lot of management is de facto done by the Commission. Not
only that, the way the financial implementation is done is such
that one could say the project and programmes are directly financed
by the Commission. It does not go through the ACP administration.
The ACP administration may make an entry in their books but in
many cases they do not have a direct influence on the financial
stream of money and the financial management as such. Even when
there has been mismanagement or decisions which resulted in waste
of money, it is often not due to typical weak administration in
the ACP countries but it is due rather to weak decisionmaking
on the project overall. To give you an example, at a given moment
in the construction of a road a study was done and that road had
to go through a swampy area. Holes were drilled in order to find
out whether the base was solid enough to take a dam in that area
or whether one had to build a bridge. This was a project about
six or seven years ago. It was found by the company which did
the study that they were not certain enough, they needed some
more drilling and it would cost about 20,000 Ecus, £15,000.
The Commission said it would take too long, enough was enough,
and that on the basis of the holes already drilled they had decided
to construct a dam and the road was to go over the dam. They started
the construction of the dam and when it was half way the whole
thing broke and the dam disappeared into the swamp with a number
of trucks and so on. It was a very costly affair. The work costing
about one million Ecus at that stage was lost. In the end they
had to build a bridge. That was not the result of poor ACP administration,
it was the result of an unwise decision.[1]
Mr Robathan
238. What difference do your reports make
to how Lomé operates? Do, for instance, the Council of
Ministers, the Commission, the European Parliament, the delegations
themselves or the ACP countries, take any notice of what is said
in your reports? What action do they take?
(Mr Rozema) Yes and no. In many cases, especially
on technical things like financial reporting and accounting and
transparency and filing, the Commission, with or without pressure
from let us say the European Parliament or the Council, would
tend to react to our recommendations. To give an example, when
we did an inquiry on the "Stabex" procedures, amongst
a number of other things we found that the decisionmaking procedures
on "Stabex", on the amounts which were ultimately paid
to the beneficiary country, were not very explicit. There was
a calculation based on statistics and then you had to find the
causes of a drop in exports and if the causes were bad management
in ACP countries the transfer payments were reduced. We found
that the considerations used to decide whether to reduce or not
to reduce those payments were not clear enough. That is the type
of comment where the Commission would react and since then they
have improved their procedures and made their decisions more explicit.
However, for many, many years we have criticised the, let us say,
lack of coordination, which is a difficult item anyhow. We have
constantly made comments about poor preparation of projects and
programmes, poor assessment, a lack of explicit objectives and
targets. Either this is too difficult or it is too political—I
do not know the reason—but the fact that we have to repeat
those criticisms means they are not followed up. Parliament in
the past said something should be done about it but the Parliament
has extremely limited powers in respect of the European Development
Fund. Only since Lomé IV have they had the power to approve
the accounts: before that they did not formally even have that
power. In the whole preparation and setup of Lomé the European
Parliament has no power at all.
Ann Clwyd
239. Which mechanisms or channels, apart
from the Court of Auditors, can be used to ensure that your recommendations
are actually implemented?
(Mr Rozema) Do you mean the institutional mechanisms?
1 Note by witness: An important negative influence
can be caused by ACP-countries' policies, though. In cases of
price control on agricultural products in combination with a strong
inflation farmers may receive so little for their products (prices
being fixed long before the moment of selling) that they can hardly
pay the inputs for the next season. A market orientated programme
can thus collapse completely. Such a phenomenon could be considered
as mismanagement. Back
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