Select Committee on Public Accounts Thirty-Fifth Report

THE ANNUAL REPORT OF THE EUROPEAN COURT OF AUDITORS FOR 1996

BACKGROUND

6. The European Court of Auditors (the Court) were established in 1977 as the external auditors of the European Community. The Court examine the implementation of the Community Budget and whether all revenue has been received and all expenditure has been incurred in a lawful and regular manner. The Court also examine whether financial management has been sound. The Court prepare an Annual Report on their audit findings and observations, and an annual Statement of Assurance on the reliability of the Community's accounts, and the legality and regularity of the underlying transactions.

7. On 18 November 1997 the Court published their Annual Report on the implementation of the 1996 Community Budget which incorporated their Statement of Assurance on the Community's 1996 accounts. In 1996 the Budget was some £60 billion. The European Commission (the Commission) have overall responsibility for implementing the Budget but over 80 per cent of the expenditure is managed by Member States. An analysis of the Community's revenue and expenditure is shown in Figure 1.

8. The United Kingdom was the third largest net contributor to the Community Budget in 1996 with £6.1 billion of Community receipts emanating in the United Kingdom and £4.4 billion being spent within the United Kingdom, representing a net outflow of £1.7 billion (see Figure 2).

9. The majority of European expenditure in the United Kingdom passes through the Appropriation Accounts of government departments. We are concerned that these European funds are spent in accordance with the regulations and with due regard for regularity and value for money, and that they are properly accounted for. Our concern for accountability is the same for European funds as it is for the spending of United Kingdom funds.

10. In February 1996 this Committee's predecessor considered a note by the Comptroller and Auditor General on the Court's Annual Report and Statement of Assurance for 1994.[2] The Committee expressed concern at the Court's conclusion that there remained considerable potential for improving the way Community finances were managed both within Member States and the European Institutions. They were also concerned that the Court were unable to provide global positive assurance with regard to the legality and regularity of Community expenditure because of the number of errors in the transactions underlying the payments in the accounts.

Figure 1

Figure 2

Notes:    (1)  Ownership of customs duties and agricultural levies ('traditional own resources') rests with the European Communities.

(2)  Member States are entitled to retain 10 per cent from levies and duties made available to the Commission to cover their collection costs.

(3)  The United Kingdom's Value Added Tax contribution is abated under the 1984 Fontainebleau agreement.

(4)  The Value Added Tax and Gross National Product contributions are initially forecast and then adjusted as final figures become available.

(5)  A conversion rate of £1 = 1.3563 ECU - the annual average rate for 1996 - has been used.

11. Last Parliament's Committee urged the Government, in their relations with the Community, to continue their demands for greater emphasis on measures to improve budgetary discipline and obtain value for money, and to support the implementation of reforms under the European Commission's financial management improvement programme. In particular, the Committee urged the Government to continue to insist on rigorous application of regulations governing the Structural Funds where there was evidence of significant irregularities, and to press for publication of the Community's audited accounts in a clear format accompanied by the Statement of Assurance.

12. The Comptroller and Auditor General has reported on the Court's findings in their 1994 and 1995 Annual Reports. The United Kingdom hold the Presidency of the European Union during the first half of 1998 and this is an opportune time to review the Court's Annual Report. We have therefore considered the Comptroller and Auditor General's report on the Court's Annual Report for 1996.

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2   Committee of Public Accounts, Tenth Report, Session 1995-96 (HC 250). Back

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Prepared 17 May 1998