19 Audit of Community finances
| (25329)
5758/04
SEC(04) 79
| Commission Action Plan to follow up the recommendations of the Court of Auditors in its Annual Report relating to the 2002 budgetary year
|
| Legal base | — |
| Document originated | 27 January 2004
|
| Deposited in Parliament | 4 February 2004
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| Department | HM Treasury |
| Basis of consideration | EM of 5 March 2004
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| Previous Committee Report | None
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| To be discussed in Council | None planned
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| Committee's assessment | Politically important
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| Committee's decision | Cleared
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Background
19.1 As part of the process of discharge by the European Parliament
and the Council (the final stage of the budgetary cycle) the Commission
is required to present an action plan based on its responses to
the annual report of the European Court of Auditors (ECA). We
recommended the ECA's report for 2002 for debate, with other documents
related to proper management of the Community's resources; this
took place on 23 February 2004.[43]
The document
19.2 The Commission's Action Plan relating to the 2002 budgetary
year examines measures to be implemented to improve financial
management and thus gain in future satisfactory Statements of
Assurance (such statements are frequently referred to as a DAS,
from the French "déclaration d'assurance").
The document responds under twelve subject headings to 147 recommendations
by the ECA. In each section covering the twelve subjects the
Commission summarises the ECA comments and its own responses and
sets out its full response and intended actions alongside each
detailed recommendation.
19.3 The Commission deals with 19 recommendations
under the heading "Actions Resulting from the DAS for 2002".
The practical improvements made include:
- setting up an Accounting Standards
Committee to examine accounting entries and how a recording base
which remains comparable over the years can be achieved;
- setting up a system of reporting to authorising
departments of forecasts of revenue and recovery orders which
are overdue;
- an accounting standard for pre-financing payments;
and
- updated guidelines for producing the annual activity
reports of Directorates-General.
19.4 Six responses under the heading "Budget
Implementation" include information on:
- a project to support access
to credits for small farmers and small and medium-sized enterprises
in rural areas of candidate countries to counter previous difficulties
in pre-financing projects; and
- improved procedures in forecasting spending on
Structural Funds.
19.5 Included in the proposed actions in response
to the six comments under "Own resources" are:
- an audit in 2004 of the special
risks to the control regime at airports; and
- better presentation of VAT statements.
19.6 In relation to the heading "Common Agricultural
Policy" the Commission gives 15 replies which include proposed
action to solve problems and weaknesses identified in:
- butter disposal measures, the
aid scheme for cotton and the market in dried fodder;
- pre-financing and rate setting of export refunds;
and
- support for less favoured areas.
19.7 Responses to 23 recommendations on "Structural
Operations" include undertakings on:
- pursuing a "contract of
confidence" initiative, which will enable the Commission
to rely more directly on national audit work;
- carrying out a three-phase audit approach to
gain assurance with regard to the legality and regularity of underlying
expenditure on the 1994-99 programming period;
- planning a follow-up audit to verify improvements
in the management and control systems of the Welsh authorities;
and
- improving cost-benefit analyses.
19.8 Dealt with in the Commission's 13 replies on
"Internal Policies" are:
- peer review of the 2002 annual
activity reports;
- monitoring of the quality of external audits;
and
- seven matters related to the LIFE (the financial
instrument for the environment) programme.
19.9 The 16 comments on the "External Actions"
heading include the following commitments:
- independent external auditors
to provide assurance for spending by the implementing organisations
of external aid, and for audits of spending by the EuropeAid Cooperation
Office or of external EU delegations;
- absorption-capacity building in countries assisted
through TACIS (grant-financed assistance to 12 Eastern European
and Central Asian countries); and
- concentrating development assistance to India
on the health and education sectors.
19.10 The Commission replies to 21 recommendations
on "Enlargement". These include proposed action on:
- a review of the closure audit
strategy for the PHARE (aid for new Member States) programme by
the end of 2004;
- verifying checking procedures within the SAPARD
(agriculture and rural development aid for new Member States)
programme; and
- introduction in 2004-06 of Neighbourhood Programmes,
covering the external border of the expanded EU, to improve coordination
between the various aid instruments (PHARE, TACIS etc.) operating
in eastern Europe.
19.11 Responses to the six comments under the "Administrative
Expenditure" heading include :
- an action plan to improve management
of risks and weaknesses as a result of the Commission's own Internal
Control and Risk Self-Assessment; and
- an evaluation report on the management of leave
and absence, which will lead to new measures.
19.12 The Commission makes 11 replies to recommendations
on "Financial Instruments". These include:
- an "Internal Audit Capability"
audit, which would risk-assess banking operations and related
treasury activities; and
- a plan to deal with the remaining observations
and recommendations of a report on the loans and borrowings for
the European Coal and Steel Community (ECSC).
19.13 On the eight recommendations on the "European
Development Fund (EDF)" the Commission includes the following
points:
- the Commission adopted in October
2003 a Communication on integrating the EDF into the budget; and
- reorganisation of Commission procedures on drawing
up and monitoring of contracts to spend EDF money in African,
Caribbean and Pacific countries is currently being implemented.
19.14 The Commission's two replies under the heading
"European Coal and Steel Community (ECSC)" are:
- the management and control
functions for the ECSC have been separate since the end of December
2002; and
- the Commission will study setting up an inventory
of patents filed by organisations that received ECSC aid.
The Government's view
19.15 The Financial Secretary to the Treasury (Ruth
Kelly) says:
"The Government welcomes this Commission Action
Plan, which demonstrates once again that the ECA's recommendations
are being taken seriously.
"The Commission's management and control systems
have been criticised by the ECA for the ninth year running, but
changes are taking place. The UK welcomes the establishment of
an Accounting Standards Committee to look at ways of drawing comparisons
on accounting standards from year to year, and also the improvement
of IT systems to allow for better bookkeeping and clearing of
prefinancing payments. Such measures are positive steps on the
road to getting a positive Statement of Assurance (DAS) for the
whole EU Budget.
"The UK recognises and agrees with the Court's
criticisms that budget implementation must be improved. Measures
such as the improvements to procedures in forecasting spending
on Structural Funds, mentioned in the Action Plan, will help to
reduce the large and regular budget surpluses over time. The
Government agrees with the Court's recommendation that the Commission
should use the Amending Budget procedure to amend the budget in-year
if there is a large surplus next year.
"The Government appreciates that the different
sectors of the Community budget give rise to differing problems
and is pleased that the Commission has introduced proposals for
sector-specific remedial measures, whether they be the raft of
new regulations to solve problems in butter, cotton or dried fodder
in Agriculture; the 'contract of confidence' initiative in Structural
Funds that will mean audit resources are deployed more efficiently;
the Neighbourhood Programmes in eastern Europe to [make] aid measures
there more effective; or the improvements to the annual activity
reporting process in internal administration to make annual measurements
more meaningful and comparable."
Conclusion
19.16 The document is a useful reminder of the
sorts of matters which prevent the European Court of Auditors
from issuing positive Statements of Assurance and of the Commission's
efforts to correct these. We clear the document.
43 See (25165) OJ C 286 Vol 46: HC 42-v (2003-04),
para 3 (14 January 2004) and Stg Co Deb, European Standing Committee
B, 23 February 2004, cols. 3-30. Back
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