20 Financial management
| (26005)
13100/04
COM(04) 648
| Commission Report on the follow-up to the 2002 Discharges
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| Legal base | Article 276 EC
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| Document originated | 30 September 2004
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| Deposited in Parliament | 11 October 2004
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| Department | HM Treasury |
| Basis of consideration | EM of 8 November 2004
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| Previous Committee Report | None; but see (25891) 11890/04 (25925) 11981/04 + ADDs 1 and 2: HC 42-xxxii (2003-04), para 4 (13 October 2004)
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| To be discussed in Council | Not known
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| Committee's assessment | Politically important
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| Committee's decision | Cleared, but relevant to the debate already recommended on the Commission's 2003 annual report on the fight against fraud and related documents
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Background
20.1 As part of the process of discharge (final closure of the
accounts) of the General Budget, the European Parliament and the
Council make recommendations for improvements in the implementation
of the budget. The Commission prepares follow-up reports giving
an account of actions taken in response to those recommendations.
Similar processes take place in relation to the budgets of the
Sixth, Seventh and Eighth European Development Funds (EDF), the
European Coal and Steel Community (ECSC) and some agencies.
The document
20.2 The report describes measures the Commission has taken or
is taking in response to the recommendations the European Parliament
and the Council made during the discharge for the 2002 General
Budget.
20.3 The report is divided into five sections:
- I: European Parliament Resolution
on the General Budget;
- II: European Parliament Resolution on the EDF;
- III: European Parliament Resolution on the ECSC;
- IV: European Parliament Resolutions on Agencies;
and
- V: Recommendation of the Council on the General
Budget.
The first and second sections are subdivided by detailed
budget area. Unlike the previous follow-up report, which took
each of the European Parliament or Council comments and recommendations
in turn and gave the Commission's response and/or action taken
or to be taken,[48] this
report summarises sectors or themes raised by the European Parliament
or Council, the Commission's actions, already taken or intended,
and the recommendations the Commission is not taking up, or is
unable to take up.
20.4 The Financial Secretary to the Treasury (Mr
Stephen Timms) helpfully highlights in his Explanatory Memorandum
the General Budget areas where Commission's actions are of topical
interest in regard to good financial management. He says:
"The key areas of the Reform process are
the new Financial Regulation and the modernisation of staff regulations.
Both of these are now part of the day-to-day functioning of the
Commission. The Commission agreed with the European Parliament
that reform is a continuous process, which did not end with the
adoption of legislative texts.
"The Commission responded by highlighting
three areas of achievement. Modernisation of accounts was on track
and the Commission would continue to inform the European Parliament
on a regular basis of the progress that was being made. Significant
progress was made in the implementation of Internal Control Standards,
and in 2004 an assessment of Directorate Generals showed that
91% of standards were fully achieved at the end of 2003 and 8%
partially implemented. In the future the emphasis would be on
the underlying systems, verifying that systems work well in practice
and the necessary assurances are delivered to the budgetary authority.
"On Annual Activity Reports (AARs), the
Commission has provided guidance to Directors General on drafting
their declarations for the reports. The Commission also carried
out a second peer review exercise of the reports and declarations.
Both of these initiatives will contribute to improving consistency
in the Commission's approach to producing AARs.
OLAF [The European Anti-Fraud Office]
"The Commission had taken on board the comments
of the European Parliament concerning the Commission proposal
to amend Regulation (EC) No. 1073/1999;[49]
this will be dealt with in deliberations of the legislative authority.
"[The] Commission reported that all cases
inherited from UCLAF,[50]
had now been closed. OLAF was to submit a report on the matter
to the OLAF Supervisory Committee in due course.
"The Commission agreed with European Parliament
that anti-corruption strategies for new Member States and accession
countries should be supported. A new budget line was created in
2004, which amounted to €3 million for special support to
Non-Governmental Organisations (NGOs) in new Member States to
act as watchdogs for civil society and uncover corrupt practice
in public administration.
"A European Parliament resolution called
for Non-Governmental Organisations (NGOs) to meet certain standards
on accounting, audits and transparency. The Commission's response
was to remind the Parliament that they were not in the position
to monitor or intervene in the internal management of NGOs. But
it reiterated that NGOs, like other beneficiaries from the general
budget of the European Union, were obliged to fulfil the requirements
of the Financial Regulation.
"The European Parliament had many concerns
about the framework of the Discharge procedure on the Eurostat
case. In response the Commission made it clear that it was keeping
Parliament informed through the Budgetary Control Committee during
the various steps of the procedure leading to the granting of
the Discharge.
"The Commission explained that it would
not be able to implement the specific requests from the European
Parliament to publish internal audit reports because of their
confidential nature.
"The Commission has re-examined the new
Financial Regulation, to identify any potential risk, which would
expose the Community Budget to fraud. The Commission stated that
assessments of the fraud-proofing of the financial rules would
take place at the first review of the Financial Regulation in
2005 according to article 180 of the Regulation, which states
that reviews take place every three years.
"The Commission reported that the Discharge
Authority is informed on a regular basis of measures that have
been taken to promote better budget implementation. The next Structural
Funds Regulation would include the lessons learnt and measures
such as the "n + 2" rules.[51]
The Commission does not agree that sanctions on Member States
for poor budgetary estimates, provision of SAPARD guidance in
all the languages of acceding countries and a quarterly breakdown
of the situation as regards to the application of the "n
+ 2" rule, are appropriate. The Commission informs the European
Parliament of the actual application of the "n + 2"
rule as soon as the final figures are known. Lastly, it was stated
that good practice in the disbursement of Structural Funds depends
on a wide range of factors."
The Government's view
20.5 The Minister says:
"This
report by the Commission is a useful summary of action taken to
follow-up recommendations relating to the budget discharge for
2002. It shows that the Commission takes both the European Parliament's
and the Council's recommendations seriously. The Government welcomes
the decision to present the Commission's response to both the
Council and the Parliament in a single document.
"The Government further welcomes the Commission's
continued commitment to reform of its financial management of
the Community's funds, as evidenced in the new financial regulation.
The Government agrees that in future, fraud proofing of the financial
rules should be pursued."
Conclusion
20.6 The Commission's responses to the recommendations
of the European Parliament and of the Council cast additional
light on how management of the Communities' finances is developing.
We clear the document, but we regard it as relevant to the debate
already recommended in European Standing Committee B on the Commission's
2003 annual report on the fight against fraud and related documents.[52]
48 See (25014) 14403/03: HC 42-I (2003-04), para 24
(3 December 2003). Back
49
See (25396) 6387/04 (25397) 6389/04: HC 42-xiii (2003-04), para
4 (17 March 2004). Back
50
OLAF's predecessor - Unite de Coordination de la Lutte Anti-Fraud. Back
51
The rule under which Structural Funds money is decommited if not
spent by the end of the second year after the year of commitment. Back
52
See (25891) 11890/04 (25925) 11981/04 + ADD1 and 2: HC 42-xxxii
(2003-04), para 4 (13 October 2004). Back
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