Select Committee on European Scrutiny Thirty-Eighth Report


8 Financial management

(a)

(27519)

9628/06

COM(06) 213

(b)

(27768)

12226/06

SEC(06) 866


Amended draft Regulation amending Regulation (EC, Euratom) No. 1605/2002 on the Financial Regulation applicable to the general budget of the European Communities

Draft Commission Regulation (EC, Euratom) amending Regulation (EC, Euratom) No. 2342/2002 laying down detailed rules for the implementation of Regulation (EC, Euratom) No. 1605/2002 on the Financial Regulation applicable to the general budget of the European Communities

Legal baseArticle 279(1); consultation; unanimity (from 1 January 2007 QMV)
Document originated(b) 4 July 2006
Deposited in Parliament(b) 5 September 2006
DepartmentHM Treasury
Basis of consideration(a) Minister's letter of 29 September 2006

(b) EM of 29 September 2006

Previous Committee Report(a) HC 34-xxxiv (2005-06), para 5 (5 July 2006)

(b) None

To be discussed in CouncilNot known
Committee's assessmentPolitically important
Committee's decisionDocument (a) not cleared, further information requested

Document (b) cleared

Background

8.1 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.

8.2 In May 2005 the Commission presented both the promised report and a draft Regulation to amend the Financial Regulation[24] The draft Regulation was intended to clarify, simplify and streamline the Financial Regulation. In May 2006 the Commission presented document (a), an amended draft Regulation to amend the Financial Regulation. The Commission said that this revised draft did not change the basic structure or key elements of the original proposal, that is 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), and Accounting and Offices (concerning inter-institutional offices).

8.3 When we considered the revised proposal in July 2006 we commented that improved management of the Communities' financial resources was important and overdue. But we said that 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 needed to pursue before agreeing to the legislation. Meanwhile we did not clear the document.[25]

The new document

8.4 The draft Commission Regulation, document (b) is to match and complement document (a) by amending the present Implementation Rules. It is based on a Commission staff working document which accompanied a draft Commission Regulation to amend the Implementing Rules, in relation to the existing Financial Regulation, presented by the Commission in October 2005.[26]

8.5 This draft Regulation would make a series of amendments to the rules in relation to Budgetary Principles, Methods of Management, Financial Actors, Recovery of Debts, Public Procurement and Contracts, Grants, Accounting, External Actions, Offices and External Experts.

The Government's view

8.6 In his letter on the amended draft Regulation in document (a) the Economic Secretary to the Treasury (Ed Balls) repeats the favourable comments we have already reported, in July 2006, about the new budgetary principle of effective and efficient internal control and about defining tolerable levels of risk. He adds that the Government thinks it important to have a Financial Regulation that is fit for purpose and believes that this proposal will achieve this. But the Minister does not tell us explicitly that there are no significant issues it needs to pursue before agreeing to the legislation.

8.7 In his Explanatory Memorandum on the draft Commission Regulation in document (b) the Minister says:

  • the proposals in the draft Regulation contribute to the process of improving financial management in the Commission and protecting the financial interests of the Community;
  • they are consequential upon the proposed amendments to the Financial Regulation;
  • the Government agrees that the current Implementing Rules are in need of some simplification and clarification in the light of the proposed amendments to the Financial Regulation;
  • most of the amendments are technical, covering the payments of grants and procurement procedures, and are not controversial; and
  • the definition of effective and efficient internal control, and the procedures described for agreement on the level of tolerable risk, are integral to the development of a Community integrated internal control framework.

Conclusion

8.8 As we commented before, improved management of the Communities' financial resources is important and overdue. We clear the draft Commission Regulation in document (b). But before clearing the amended draft Regulation in document (a) we should be grateful for confirmation that there are no significant issues which need to be pursued before the Government agrees to the legislation.


24   (26712) 11021/05: See HC 34-vii (2005-06), para 10 (26 October 2005). Back

25   See headnote. Back

26   (26960) 13542/05 + ADD1: See HC 34-xiii (2005-06), para 14 (14 December 2005). Back


 
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