36 Audit
| (27444)
8630/06
+ ADD1
COM(06) 524
| Commission Report: Member States' replies to the Court of Auditors' 2004 Annual Report
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| Legal base | — |
| Document originated | 20 April 2006
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| Deposited in Parliament | 28 April 2006
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| Department | HM Treasury |
| Basis of consideration | EM of 23 May 2006
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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 | Clear
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Background
36.1 The Commission is obliged to inform Member States of the
references to them in the annual reports of the European Court
of Auditors and to invite them to respond.
The document
36.2 In this document the Commission reports on the responses
of Member States to the references to them made in the European
Court of Auditors' 2004 Annual Report.[115]
The Commission discusses the responses in relation to the preparation
of the audit report, the audit and control framework, the substantive
findings for 2004, particularly in relation to agricultural policy
and structural actions, and its own conclusions. It annexes a
summary analysis of Member States' responses.
36.3 On the preparation of the audit report the Commission
notes comments about timing difficulties leading to Member States'
comments on the European Court of Auditors' preliminary findings
not being taken into account in the final report and that the
timetable for comments during the audit for 2005 is even tighter.
In relation to the audit and control framework the Commission
draws attention to four comments:
- the UK Government suggested
that audits be set up "as system and benefit cost audits
rather than transaction tracing audits" as transaction tracing
audits bring up specific timed errors, often of minor amounts,
which when extrapolated can make it appear that the whole programme
is in error;
- France asked for more information on the Court's
sampling method when auditing structural funds;
- Denmark considered it extremely important that
the work of Member States' Supreme Audit Institutions is incorporated
in the Court's Statement of Assurance audit; and
- Germany proposed that the cost of management
and control systems in Member States should be assessed by the
Commission to ensure that cost is proportionate to the results
obtained.
36.4 As for the substantive findings in agricultural
policy in 2004 the Commission says that two-thirds related to
over-declaration of the surface of land — differences between
the area declared and the area measured by the European Court
of Auditors was less than 2% in a quarter of the cases, between
2% and 10% in half and more than 10% in the remainder. Member
States mostly accepted the Court findings but attributed some
of them to differences in measuring methods and other acceptable
causes. On the substantive findings related to structural actions
Member States tended to agree with the Court in only slightly
more than a third of cases. Examples of disagreement concerned
classification of expenditure, proof of co-financing, existence
of audit trails, differences in requirements for audit control
structures between programming periods and checks on transactions.
36.5 The Commission concludes that:
- the Commission welcomes the
Member States' replies as this annual feedback is a valuable opportunity
to pick up on horizontal issues linked to the European Court of
Auditors' annual report;
- in considering how to make better use of the
expertise of the national Supreme Audit Institutions and how to
achieve a single audit approach, the problem of Member States'
initial responses not being in the Court's final report and of
tight time-tabling should be addressed;
- the issue of the benefits of audit methods not
matching costs should be addressed at an operational level when
estimating the costs of controls but also at the strategic level
when discussing risks to be tolerated;
- analysis of the substantive findings on agriculture
policy and structural actions shows that there is a need to resolve
or clarify issues such as the right method to measure land, eligible
expenditure within structural actions and the timing of checks
for structural actions;
- there is a need to undertake an inter-institutional
dialogue on risks to be tolerated in the underlying transactions
and the effects this may have on the Court's Statement of Assurance
method; and
- a framework for the co-operation necessary to
resolve the issues raised by Member States is set out in the Action
Plan "Towards an Integrated Internal Control Framework",
which defines 16 specific actions to be implemented during 2006
and 2007.[116]
The Government's view
36.6 The Economic Secretary to the Treasury (Ed Balls)
says that the Government welcomes this report. He says that it
is useful to consider Member States responses together with the
European Court of Auditors' findings, as this informs understanding
of the problems encountered by Member States and the Commission
in management of the Community budget.
Conclusion
36.7 This report, which we clear, is a useful
summary of one aspect of the continuing efforts to improve management
of the Community's financial resources.
115 (26994): See HC 34-xv (2005-06), para 4 (18 January
2006) and HC 34-xviii (2005-06), para 1 (8 February 2006) and
HC Deb, 7 March 2006, cols. 747-792. Back
116
(27230) 5509/06 + ADD 1: See HC 34-xix (2005-06), para 14 (15
February 2006). Back
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