5 Financial management
| (a)
(26712)
11021/05
COM(05) 181
(b)
(27519)
9628/06
COM(06) 213
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Draft Regulation amending Regulation (EC, Euratom) No. 1605/2002 on the Financial Regulation applicable to the general budget of the European Communities
Commission Report on the application of the provisions of the new Financial Regulation
Amended draft Regulation amending Regulation (EC, Euratom) No. 1605/2002 on the Financial Regulation applicable to the general budget of the European Communities
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| Legal base | Article 279(1); consultation; unanimity (from 1 January 2007 QMV)
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| Document originated | (b) 18 May 2006
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| Deposited in Parliament | (b) 24 May 2006
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| Department | HM Treasury |
| Basis of consideration | EM of 18 June 2006
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| Previous Committee Report | (a) HC 34-vii (2005-06), para 10 (26 October 2005)
(b) 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 | (a) Cleared
(b) Not cleared. Further information requested
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Background
5.1 Management of the general budget of the European Communities
is governed by Council Regulation (EC, Euratom) No. 1605/2002,
the so-called Financial Regulation, and Commission Regulation
(EC, Euratom) No. 2342/2002, the so-called Implementing Rules.
These Regulations were a significant recasting of the previous
legislation, introducing new accounting practices and systems,
and came into operation from 1 January 2003. When the new Financial
Regulation was adopted in 2002 the Commission gave a formal undertaking
to the Council to report by 1 January 2006 on its operation, particularly
in relation to the discontinuation of centralised ex ante
(before the event) controls and, if necessary, to submit appropriate
proposals.
5.2 In document (a) the Commission presented both
the promised report and a draft Regulation to amend the Financial
Regulation. It said that the main objectives of the review were
to:
- improve efficiency and transparency
in the operation of the rules, frequently by clarification rather
than change;
- simplify the procedural and documentation requirements
for contracts and grants and ensure they are proportionate to
costs and risks;
- simplify the requirements for grants for prior
verification and for financial and legal guarantees and ensure
they are proportionate to costs and risks; and
- clarify and streamline the rules governing methods
of management.
In the draft Regulation the Commission presented
the amendments it considered necessary under the headings of Budgetary
Principles (refining the principles set out in the Financial Regulation),
Methods of Management (concerning shared management with Member
States, international bodies and other agencies), Financial Actors
(concerning principally internal audit), Recovery of Amounts Receivable,
Public Procurement and Contracts, Grants (simplification of checks
and guarantees in relation to risk), Accounting and Offices (concerning
inter-institutional offices).
5.3 When we considered this document in October 2005
we noted that significant improvement in management of the Communities'
financial resources is important and long awaited. But, given
the expectation that the document would be overtaken by revised
proposals from the Commission, we did not clear it and postponed
consideration of this matter until deposit of a new document.[21]
The new document
5.4 Document (a) has now been the subject of:
- in October 2005 a broadly favourable
opinion from the European Economic and Social Committee;
- in December 2005 a broadly favourable opinion
from the European Court of Auditors, but with comment that the
extent of the revision is too wide and expression of some concern
in specific areas;
- in March 2006 a substantial contribution on the
Commission's proposal, suggesting 134 amendments, from the European
Parliament; and
- in March 2006 a completed first reading by the
Council.
5.5 In order to take account of the views of these
four bodies, as well as those of others consulted by the Commission,
it has now proposed, in document (b), an amended draft Regulation
in place of that in document (a). The Commission asserts that
the amendments do not change the basic structure or the key elements
of its original proposal. It says the amended draft Regulation
preserves the provisions of the financial reform initiated in
the current Financial Regulation and Implementing Rules and strikes
a better balance between protection of the financial interest
of the Communities and proportionality of administrative costs
and user-friendly procedures.
5.6 It is the Commission's hope that consideration
of the amended draft Regulation can be completed in time to allow
it to adopt new Implementing Rules, with a view to both coming
into operation from 1 January 2007.
The Government's view
5.7 The Economic Secretary to the Treasury (Ed Balls)
says that the Commission's revised proposal contributes to the
process of improving financial management in the Commission and
protecting the financial interests of the Community. He tells
us that the Government agrees with the Commission that the current
Financial Regulation is overly stringent and in need of clarification.
The Minister says that the Government is considering the details
of the revised proposal carefully.
5.8 Meanwhile the Minister comments that the Government
is pleased that:
- there is to be a new budgetary
principle of effective and efficient internal control; and
- this principle includes a reference to the need
to enforce controls that are sufficient to attain a tolerable
level of risk, taking into account the multi-annual character
of programmes as well as the nature of the payments concerned.
Conclusion
5.9 As document (a) is overtaken by document (b)
we now clear the former.
5.10 As for the amended draft Regulation, document
(b), as we have commented previously, improved management of the
Communities' financial resources is important and overdue. We
note the Commission's assertion that its revised proposal strikes
a better balance between protection of the financial interest
of the Communities and proportionality of administrative costs
and user-friendly procedures and that the Government agrees with
the Commission that the current Financial Regulation is overly
stringent and in need of clarification. However before considering
the document further we should like to hear the outcome of the
Government's detailed consideration of the proposal, particularly
as to any significant issues it needs to pursue before agreeing
to the legislation.
5.11 Meanwhile we do not clear document (b).
21 See headnote. Back
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