Conclusions and recommendations
The Committee of Public Accounts visited the European
Commission (the Commission), the European Court of Auditors (the
Court), and the European Anti-Fraud Office (OLAF), in March 2005
to discuss the Comptroller and Auditor General's Report[1]
on financial management in the European Union and to examine what
progress there had been since the Committee's last visit in April
1999. We are grateful to all those with whom we met for their
help and openness.
1. Historically, accountability and audit
arrangements of the European Union have been characterised by
inertia among the Institutions.
Since the Committee's last visit, the Commission has started to
implement a programme of reform and there is movement to more
accountable and transparent ways of working. The Commission is
committed to change but there is still a long way to go to secure
the standards that European taxpayers are entitled to expect.
2. The size of the European Union overall
budget and the United Kingdom's contribution to it emphasises
the need for strong financial management and frameworks of accountability.
For the tenth year in succession the Court qualified its opinion
on the reliability of the Community annual accounts and did not
provide a positive opinion on the main five out of the six payment
headings. The lack of a positive Statement of Assurance undermines
public confidence in European Institutions.
3. Despite the continued qualification of
the Community accounts, the Commission has made some progress
in improving financial management. The
Court identified improvements in the quality of the annual reports
intended to enhance the accountability of each DirectorateGeneral
and it noted that the Commission had made good progress in designing
internal control systems. The introduction of a new accruals accounting
system, with supporting IT, is another welcome development especially
as the qualification on the reliability of the accounts was attributable
largely to weaknesses in the previous accounting system. The Commission
has also established an Internal Audit Service which reports to
an independent audit committee with six members, two of which
are external appointments.
4. It is difficult to obtain a clear indication
of the extent of the problems relating to the legality and regularity
of European Union expenditure. It would
be helpful if the Court's annual report could indicate more clearly
its assessment of the legality and regularity for each area of
the budget. In addition, the report could usefully give an indication
of how much progress or otherwise the Commission is making both
generally and under each of the six expenditure headings and it
could also point to developments within Member States. Such enhancements
could assist the Commission and the Member States in making the
necessary improvements to move forwards to an unqualified opinion
on the accounts. In the meantime, the Court could consider the
scope for producing a separate Statement of Assurance for each
expenditure heading and for each Member State.
5. A major factor contributing to the qualified
audit opinion is the level of errors identified by the Court.
This is partly due to the complexity of schemes and programmes,
particularly for payments under the Common Agricultural Policy
and Structural Measures. In designing
schemes and programmes, the European Institutions should consider
the relationship between desired outcomes of a particular scheme,
the complexity of the rules governing it and the consequential
likelihood of an error occurring. There is also a lack of common
understanding between the Commission and the Court about the definition
of error. This should be resolved.
6. The Barroso Commission has committed, as
one of its objectives for the next five years, to move towards
a positive Statement of Assurance in order to enhance accountability.
The European Institutions, led by the Commission and supported
by the Member States, have agreed on the need for a road map intended
to achieve this objective. The road map will be built on the principles
of the Community Internal Control Framework recommended by the
Court. Under the road map, the Commission would be responsible
for promoting improvements in internal controls in partnership
with Member States.
7. The commitment by all parties concerned
to progress towards a positive Statement of Assurance is welcome,
but the scale of the task ahead is formidable.
The European Union's budget covers six expenditure headings and
is spent by 25 Member States as well as third countries and
the Institutions. Some of the Member States have federal structures
and autonomous regions. With this variety of transactions and
the number of bodies and systems which manage and control them
it is far from clear how quickly this worthy ambition can be achieved.
8. There is scope for more value for money
work and reporting by the Court. The Court
has a duty to examine "whether the financial management has
been sound", corresponding broadly to audits of economy,
efficiency and effectiveness by the Comptroller and Auditor General
in the United Kingdom. The results of the Court's work in this
area are included in its Annual Report and in Special Reports.
But the scale of this work is totally inadequate given the importance
of ensuring the effective use of Community funds.
9. No independent review of the Court's work
has taken place since it was set up in 1977. Unlike
the United Kingdom National Audit Office, the Court does not report
on its own performance to anyone. The Court should therefore consider
arranging a peer review of its approach and work to test the quality
and relevance of what it does and demonstrate its willingness
to learn from others.
10. The precise level of fraud against European
funds is unclear at present. Differentiating
between fraud and irregularity is complex. For example, Member
States are required to report irregularities, including fraud,
to the Office Européen de Lutte Anti Fraude (OLAF), the
European antifraud office, but they do not do so on a consistent
basis. OLAF's current work on a methodology to distinguish between
irregularity and intentional fraud is clearly a priority.
11. The United Kingdom Government should utilise
the occasion of the United Kingdom Presidency to improve accountability
in the European Union. Specifically, it
should:
a) as a top priority, press for the simplification
of the rules and regulations of the Common Agricultural Policy
and Structural Funds to reduce the scope for fraud and error so
as to increase the prospects of achieving a positive Statement
of Assurance;
b) support, and encourage other Members States
to support, the development of the road map for a positive Statement
of Assurance. In particular, attention should be focused on
- identifying the reasons the
Court is unable provide a positive Statement of Assurance on the
legality and regularity of the underlying transactions;
- the action the Commission and National Authorities
need to take in each of the areas which are a cause for concern,
with a specific focus on the major areas of European Union spending,
support for agriculture through the Common Agricultural Policy
and the Structural Measures; and
- the prospects of National Authorities entering
into 'Contracts of Confidence' and the likely value of such contracts
for accountability;
c) encourage, with other Member States and the
Commission, an increased focus on value for money work in the
Court given the importance of ensuring the effective use of community
funds; and
d) support OLAF's efforts to obtain a clearer
picture of the scale of irregularity, including fraud, by:
- encouraging Member States to
(i) fulfil their obligation to protect Community Funds as they
protect National Funds; (ii) deter crime against European interests
by identifying those responsible and applying effective penalties
and sanctions;
- setting a good example to the other Member States
by complying with OLAF's guidelines for reporting regularities;
and
- encouraging a programme of secondments to OLAF
from a wide range of United Kingdom institutions, including the
police force.
1 C&AG's Report, Financial management of the
European Union, (HC 289, Session 2004-05) Back
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