10 Financial management
| (a)
(26260)
5191/05
COM(04) 859
(b)
(26289)
5349/05
COM(04) 850
|
Commission Report: Member States' replies to the Court of Auditors' 2002 Annual Report
Commission Report: Follow up of traditional own resources in cases of fraud and irregularity
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| Legal base | — |
| Document originated | (a) 5 January 2005
(b) 7 January 2005
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| Deposited in Parliament | (a) 12 January 2005
(b) 18 January 2005
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| Department | (a) HM Treasury
(b) Customs and Excise
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| Basis of consideration | EMs of 2 February 2005
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| Previous Committee Report | None
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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 annual report on the fight against fraud, the European Court of Auditors 2003 report and related documents
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Background
10.1 The Commission is required to inform Member States of references
to them in the annual report of the European Court of Auditors
and to invite them to respond. The Commission then publishes an
analysis of replies.
10.2 Member States are responsible for the collection
of customs and agricultural duties (traditional own resources)
and making these amounts available to the Commission. Established
entitlements which are paid or secured are entered in the so-called
A account. Debts which are not secured or secured debts which
are contested may be entered in the separate so-called B account.
Member States are obliged to inform the Commission, through its
OWNRES database, of detected cases of fraud and irregularity exceeding
€10,000 (£7,000). From time to time (the last occasion
was in 1999) the Commission reports on the state of play in the
recovery process of unpaid customs and agricultural duties (traditional
own resources) lost through fraud or irregularity.
The documents
10.3 In document (a) the Commission analyses and
synthesises the responses of Member States to the references to
them in the European Court of Auditors annual report for 2002.[33]
The document has sections on own resources, agriculture, the structural
funds, other sectors of expenditure and areas of agreement and
disagreement. The Commission concludes that:
- Member States largely defended
the validity of their management and the controls they carry out;
- however there have been a number of corrective
measures, including Member States taking steps to improve accounting
and control procedures in relation to own resources; and
- Member States wish in future to see more timely
issue of guidelines and better monitoring of management and control
systems.
10.4 In document (b) the Commission reports on the
state of play in the recovery process of unpaid customs and agricultural
duties on the basis of an examination of 17 cases of fraud and
irregularity (nine cases selected for the last exercise in 1998[34]
and eight new cases selected since that exercise). It notes that,
in the main, unrecovered debts arise from customs controls carried
out after release of the goods. The majority of irregularities
stem from non-compliance with customs rules without fraudulent
intent. Sometimes, cases are linked to so-called Mutual Assistance
messages where fraud is alleged — all of the 17 considered
were in this category. Where customs debts give rise to appeal
procedures, they may remain outstanding for some time. Where fraud
is involved, customs debts are nearly always established after
criminal investigation and are difficult to recover.
10.5 The Commission says the combined debt of the
selected cases represents over €160 million (£114 million).
Of the total, almost 41% has been extinguished by recovery, cancellation
or write-off while the remaining 59% is subject to administrative
or judicial procedures. Recovery procedures are progressing and
in many cases actual recovery may be just a matter of time. The
report shows an improved recovery rate of 15% in comparison with
effective rates in 1994 and 1998 of 2% and 12% respectively. But
the Commission thinks that examination of Mutual Assistance cases
will never provide reliable conclusions on Member States' recovery
action. It suggests that recent legislation whereby Member States
have five years from the end of any appeal procedure to deem a
debt irrecoverable where the balance exceeds €50,000 (£35,000)
is useful in deciding whether debt is recoverable.[35]
The Commission also notes its policy of holding Member States
accountable when a loss is due to an administrative error as an
incentive for better management and as leading to fairer distribution
of the financial burden between Member States.
The Government's view
10.6 On document (a) the Financial Secretary to the
Treasury (Mr Stephen Timms) says:
"The Government welcomes this report, which
is an effective method of sharing Member States' comments. It
is useful to be considered along with the ECA's findings and helps
understanding of the problems encountered by Member States and
the Commission in the management of the Community budget.
"The Commission holds the responsibility for
implementing the Community's budget (under Article 274 of the
Treaty) and therefore also takes the responsibility for responding
to the Court of Auditors' findings. However, the Government also
takes the UK's responsibility for managing its share of the budget
seriously and takes this opportunity to respond not only to references
to the UK in the ECA report but also to general findings, and
is one of the few Member States to do so."
10.7 On document (b) the Paymaster General (Dawn
Primarolo) says:
"The Government is content with the conclusions
of this report. The UK supported the amendment [on an end date
for deeming a debt irrecoverable] to Regulation No. 1150/2000
which came into force on 28 November 2004. These amendments should
ensure that the B Accounts provide a more reliable indicator of
the amount of customs debt where there is a realistic chance of
recovery. The Government is also supportive of the Commission's
proposed future strategy to ensure a fairer distribution of own
resources."
Conclusion
10.8 These documents throw additional light on
how management of the Communities' finances is developing. We
clear the documents, but we regard them 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[36]
and, as recommended in this Report, on the European Court of Auditors
2003 annual report.[37]
33 (25165) -; see HC 42-ix (2003-04), para 5 (4 February
2004) and Stg Co Deb, European Standing Committee B, 23
February 2004, cols 3-30. Back
34
See (20099) 7733/99: HC 23-xi (1999-2000), para 10 (8 March 2000). Back
35
See (24718) 11149/03: HC 63-xxxii (2002-03), para 32 (17 September
2003). Back
36
(25891) 11890/04 (25925) 11981 + ADD1 and 2; see HC 42-xxxii (2003-04),
para 4 (13 October 2004). Back
37
(26293) -; see para 2 of this Report. Back
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