17 Financial management
| (28463)
7255/07
+ ADD 1
COM(07) 86
| Commission Report on the progress of the Commission Action Plan towards an integrated internal control framework
|
| Legal base | — |
| Document originated | 7 March 2007
|
| Deposited in Parliament | 15 March 2007
|
| Department | HM Treasury |
| Basis of consideration | EM of 27 March 2007
|
| Previous Committee Report | None
|
| To be discussed in Council | Not known
|
| Committee's assessment | Politically important
|
| Committee's decision | Clear
|
Background
17.1 For a number of years the Commission, with the support and
encouragement of the Council, the European Parliament and the
European Court of Auditors, has been seeking to improve the management
of the Community's financial resources. In January 2006 the Commission
adopted an "Action plan towards an integrated internal control
framework", which drew on recommendations by the European
Court of Auditors.[57]
This followed on from the Commission's "Roadmap to an Integrated
Internal Control Framework", which was published in June
2005 and which proposed actions to be taken in this area by the
Commission and the Council.[58]
The document
17.2 In this report the Commission evaluates progress on the action
plan and notes adjustments to it. The Commission reports the following
measures implemented in the past year:
· an
improved assessment of management and control systems in structural
funds has been set up. An assessment of control components for
each Member State has been established, as well as legality and
irregularity indicators;
· a
more reliable control structure with clearer definitions of Member
States' responsibilities in providing assurance has been established
as part of 2007-2013 legislation for agriculture and structural
funds;
· all
paying agencies are now subject to a review mechanism requiring
increased supervision by Member States. Member States will also
be required to accredit its management and control system of structural
funds annually. The Commission will audit compliance with accreditation
criteria and will have the authority to suspend financing or apply
corrections;
· work
has been done to improve the presentation of assurance in the
Annual Activity Reports of Directors-General;
· a
new sampling approach based on international standards has been
adopted for the Sixth Research Framework Programme;
· the
Commission has designed procedures that will verify beneficiaries'
costing methodologies at the beginning of projects, reducing errors
in the use of average costs;
· to
guarantee consistent quality of audit certification, the Commission
has developed "agreed upon procedures" for use by auditors
of spending for the Seventh Research Framework Programme;
·
the Commission has pushed for a coordination of audit standards
and dissemination of guidance notes and good practice for structural
funds spending; and
· the
Commission has sought to improve coordination with national Supreme
Audit Institutions by providing them with reports of payments
made in their countries in 2005 and by seeking to develop bilateral
contacts with a number of them.
17.3 As for adjustments and modifications to the
action plan the Commission:
· proposes
strengthening the link between reasonable assurance and payments.
Legislation provides for payments to be suspended and for financial
corrections and recoveries to be made where justified —
the Commission will apply these legislative provisions and publicise
reservations about assurance and information on corrections and
recoveries;
· will
attempt to identify from direct centralised management and the
structural funds amounts recovered in 2005 and 2006 and their
coherence with errors identified during controls, so as to strengthen
the Commission's performance on recoveries.
· intends
to ensure that control resources are used cost effectively and
that the cost of the control is justified in terms of the observed
error rate, the dissuasive effects, and other qualitative benefits;
· claiming
that in certain sectors significant simplifications and clarification
of rules have been negotiated before the 2007-2013 programming
period was agreed, now wishes to clarify and simplify the operation
of the new rules in practice; and
· wishes
to continue to explore how to make the sharing of audit information
more effective.
17.4 Overall the Commission's conclusions are broadly
positive. While there have been some delays, and staying on schedule
remains a challenge, the Commission considers that it is on course
to having the foundations in place for properly managing the risk
of errors and providing increased assurance as planned by the
end of 2007. It will provide a final report on the implementation
of the action plan in early 2008. This report will take a first
look at the impact of the different actions on assurance and will
draw conclusions for the future consolidation of the integrated
internal control framework.
The Government's view
17.5 The Economic Secretary to the Treasury (Ed Balls)
says the Government welcomes the progress made by the Commission
in implementing its action plan. It will encourage the Commission
to re-double its efforts to implement fully the action plan and
to ensure that, where slippage has occurred, the lost ground is
recovered. It attaches particular priority to further progress
in simplifying the regulations of the main spending programmes,
in agreeing the principle of tolerable risk and in exploring the
costs and benefits of controls.
17.6 The Minister says also that the Government shares
the broad conclusions of the House of Lords European Union Committee
that achieving a positive statement of assurance will require
action by all concerned — not only the Commission, but the
Council, individual Member States acting with their national parliaments
and audit institutions and the Court of Auditors itself.[59]
He comments that the Government notes that Member States share
with the Commission responsibility for managing around 80% of
Community expenditure and believes it should therefore be a priority
for Member States to act to improve their own management of Community
funds at a national level. The Minister adds that the Government
announced in November 2006 that it would take a lead in showing
how Member States could act in this regard[60]
and similar initiatives are being pursued in several other countries.
He says that, while there is no single model that can be applied
across the Community, the Government is encouraging all its Community
partners to consider how they can help improve the management
of Community expenditure.
Conclusion
17.7 We are encouraged by this report showing
some progress in improving the management of the Community's finances
and note the Government implies that this progress is real, albeit
with further progress still necessary. We trust that in due course
all this will be reflected in more positive audit reports from
the European Court of Auditors. Meanwhile we clear this document.
57 (27230) 5509/06 + ADD1: see HC 34-xix (2005-06),
para 14 (15 February 2006). Back
58
(26652) 10326/05: HC 34-v (2005-06), para 43 (12 October 2005). Back
59
Fiftieth Report from the European Union Committee, 2005-06, Financial
Management and Fraud in the European Union: Perceptions, Facts
and Proposals, HL 270-I. Back
60
HC Deb, 20 November 2006, cols. WS 13-14. Back
| 
