Select Committee on European Scrutiny Tenth Report

14. EC FINANCIAL MANAGEMENT

(24190) 5298/03 SEC(02)1378

Commission Action Plan pursuant to recommendations in the Court of Auditors Annual Report relating to the 2001 budgetary year.

Legal base:	—
Document originated:	20 December 2002
Deposited in Parliament:	16 January 2003
Department:	HM Treasury
Basis of consideration:	EM of 27 January 2003
Previous Committee Report:	None
To be discussed in Council:	6 March 2003
Committee's assessment:	Politically important
Committee's decision:	Cleared, but relevant to the debate in European Standing Committee B on the European Court of Auditors 2001 Annual Report and the Commission's 2001 Annual Report on protecting the financial interests of the Communities

The document

  14.1  The Court of Auditors (ECA), in its 2001 Annual Report, which we report on in paragraph 2 above, made numerous detailed recommendations to the Commission about how the management of the Communities' financial resources might be improved. This document is the Commission's reaction — an action plan which examines measures to be implemented sector by sector to improve financial management and thus gain a satisfactory Statement of Assurance.

  14.2  The Action Plan is divided into two parts - recommendations taken up and recommendations not taken up (with reasons for not following up the latter). In each of the parts the document follows the headings of the ECA report itself:

• Own resources;

• The Common Agricultural Policy;

• Structural measures;

• Internal policies;

• External actions;

• Enlargement;

• Administrative expenditure;

• Financial instruments;

• Action resulting from the Statement of Assurance for 2001;

• European Development Funds;

• European Coal and Steel Community.

  14.3  Amongst the recommendations the Commission has taken up, or is taking up, are those about:

Own resources

• financing the UK budget correction;

• national instructions relating to control systems;

• separate accounts;

• administrative cooperation for the protection of VAT revenue;

Common Agricultural Policy

• milk levy;

• CMO (Common Market Organisation) for durum wheat;

Structural measures

• budgetary management: payment forecasts;

• implementation of the programmes: simplification;

• the Statement of Assurance: closure of operations pre-dating 2000;

Internal policies

• Trans-European Networks programme evaluation;

External action

• humanitarian aid;

Enlargement

• assistance to boost integration;

Administrative expenditure

• presentation of the satellite bodies' financial statements;

• audit of the European Schools;

Financial instruments

• reporting problems in implementation of the European Technology Facility (ETF) start-up facility;

Action resulting from the Statement of Assurance for 2001

• accounting principles;

European Development Funds

• facilitation of recoveries;

European Coal and Steel Community

• management of loans to officials.

  14.4  Amongst the recommendations the Commission is not taking up are those about:

Own resources

• reducing budget surpluses;

Common Agricultural Policy

• risks to the Agricultural Guidance and Guarantee Fund;

Structural measures

• use of amending budgets;

Internal policies

• adequate explanation for discrepancies between the initial budget and the final appropriations;

External action

• follow up to complaints and irregularities;

Enlargement

• Special Accession Programme for Agriculture and Rural Development;

Administrative expenditure

• tendering procedures of satellite bodies;

Financial instruments

• lack of indicators to measure the effectiveness of the ETF programme;

Action resulting from the Statement of Assurance for 2001

• annual activity reports.

The Government's view

  14.5  The Financial Secretary to the Treasury (Ruth Kelly) tells us:

"The Government welcomes this Action plan report which shows that the Commission is taking the Court's recommendations seriously.

"The UK recognises and agrees with Court's criticisms that the budget surplus must be better managed. The UK voluntarily revised its own 2002 forecast for Structural Funds - however, the Commission needs to take a more active role to ensure other Member States forecasts are accurate and kept up to date. The Government agrees with the Court's recommendation that the Commission should use Supplementary and Amending Budget procedure to amend the budget in-year if required because it is both costly and inefficient to maintain a budget in excess of what is required.

"The Commission's accounting standards have been criticised by the ECA, but reforms are being implemented to remedy this. The UK played a major role in recasting the new Financial Regulation,[38] which will introduce many improvements including more stringent audit requirements and a system of activity-based budgeting (which will integrate objectives and evaluation into the budget process and ensure better value for money).

"The Government appreciates that the different sectors of the Community budget give rise to differing problems and is pleased that the Commission's analysis of the Court of Auditors' observations has led to proposals for sector-specific remedial measures."

Conclusion

  14.6  This document gives a full account of the Commission's planned responses to the detailed recommendations of the European Court of Auditors' 2001 Annual Report. We are content to clear the document, but we regard it as relevant to the debate on the report which we have recommended in paragraph 2 above.

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38   (23151) 5017/02; see HC 152-xxiii (2001-02), paragraph 13 (10 April 2002). Back

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Prepared 11 February 2003