13 The Financial Management of the 6th
— 9th European Development Funds in 2006
| (28607)
9163/07
COM(07) 240
| Commission Communication: Annual Report on the financial management of the 6th-9th European Development Funds in 2006
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| Legal base | — |
| Document originated | 27 April 2007
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| Deposited in Parliament | 4 May 2007
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| Department | International Development
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| Basis of consideration | EM of 22 May 2007
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| Previous Committee Report | None; but see (27742) 12026/06: HC 34-xxxvii (2005-06) para 37 (11 October 2006)
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| To be discussed in Council | To be determined
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| Committee's assessment | Politically important
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| Committee's decision | Cleared, but further information requested
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Background
13.1 The European Development Fund (EDF) is the EU's main development
cooperation instrument for 78 African, Caribbean and Pacific (ACP)
countries and 20 Overseas Countries and Territories (OCT). The
6th EDF was established in 1984 by the 3rd
Lomé Convention. It was renewed in 1990 as the 7th
EDF and again in 1995 as the 8th EDF. The Lomé
Convention was superseded by the Cotonou Agreement (signed in
2000, entered into force in 2003) which provides the framework
for the current, 9th, EDF (EDF9).[45]
13.2 EDF9 became operational on 1 April 2003 and
runs until the end of 2007. It provides the €13.8 billion
(£9.4 billion) specified in the Cotonou Agreement for the
Community's financial assistance for the five-year period, in
addition to all uncommitted funds from previous EDFs. The UK share
of EDF9 is 12.69%.
The Commission Communication
13.3 The annual report from the Commission to the
Council, European Parliament and European Court of Auditors (ECA)
on management and financial performance for EDFs 6, 7, 8 and 9
complies with the provisions of the Financial Regulation governing
EDF 9.
13.4 The 2006 report has five main sections, including
a short introduction. Sections 2 and 3 of the report summarise
the Commission's main achievements in meeting its financial and
operational objectives for 2006. These include:
— reducing
"old" and "dormant" unspent funds (RAL —
reste à liquider);
— closing the sixth EDF;
— final readjustment of allocations in
the EDF9 end of term review;
— improving internal control systems; and
— prioritising sound financial management.
13.5 The challenges for 2007 are also outlined: to
continue to work on EDF integration into the Commission's main
management information system; and to work towards ratification
of EDF10 in time for it to become operational in January 2008,
in order to ensure continuity after the end of EDF9 in December
2007.
13.6 Section 3 shows the Commission commitment target
for 2007 is €3.16 billion (£2.179 million), which the
Commission states it will achieve, together with the end of 2007
target of recommitting unspent funds from dormant projects (decommitments).
13.7 Section 4 provides detail on each of the Commission's
2006 objectives. Section 4.1 assesses improvements in programme
quality, impact and sustainability. The achievements include:
— an
increase in the number of proposals undergoing ex ante
quality assessment by EuropeAid's Quality Support Groups (QSGs),
and an improvement in the quality of proposals.
— support to new and existing budget support
programmes, including revision to the method of assessing eligibility
compliance, continued assessments of public financial management
accountability and support to countries' own public audit authorities.
— the use of needs and performance based
indicators to underpin the EDF9 end-of-term review and subsequent
reallocation of funding.
— a basis for improved assessment of impact
and performance of EDF10 programmes has been laid during initial
preparations for EDF10 through better use of progress and improvement
targets: progress against these targets will also be used to determine
the size of any additional funding to be made available through
the proposed EDF10 governance incentive tranche.
— external monitoring in 2006 found that
EDF9-funded projects were continuing to perform on track or better.
The Commission will continue to act on findings of 2006 evaluation
studies when programming and designing future programmes.
13.8 Section 4.2 explains that the Commission either
met or exceeded its financial targets for 2006. The 2006 commitment
target was €3.4 billion (£2.345 billion); the amount
actually achieved was €3.408 billion. The payment target
was €2.75 billion (£1.897 billion); €2.826 (£1.95
billion) was actually achieved. The Commission set two 2006 targets
for RAL. The first was to reduce the implementation time target
to 4 years; in the event 3.6 years was achieved, and so the target
was exceeded. The second target was to stabilise the amount of
RAL at 2005 levels; this target was just missed. The Commission
states that it is on track to meet its decommitment and recommitment
targets for 2007. The Commission smoothed its annual payments
profile by improving the percentage of commitments approved earlier
in the year (58% completed by September 2006). Further audits
of beneficiary countries' Stabex accounts during 2007 are expected
to confirm the Commission's forecast that it will meet its Stabex
deadlines for 2007, 2008 and 2010.
13.9 Section 4.3 reports on the Commission's efforts
on improved donor coordination and harmonisation. It provides
an analysis of projects and programmes by OECD/DAC sector. Annex
5 (not Annex 3, as stated in the report) shows the position for
commitments, contracts and payments with the UN and World Bank
Group.
13.10 Section 4.4 details what the Commission has
done to improve accountability and financial controls in response
to the European Court of Auditors (ECA) 2005 Annual Report on
the EDF. It has altered its ex post control procedures,
undertaken and acted upon specific risk analyses and put in place
safeguards in response to its own Internal Audit Service recommendations.
Section 5 provides more detail on the follow-up to the ECA report.
13.11 Section 4.5 provides information on human resources
and internal procedures. It includes details of staff vacancy
rates in Commission headquarters and delegations; how changes
to align the EDF9 Financial Regulation with the Financial Regulation
of the general budget have simplified some procedures; and how
planned changes that will apply to the EDF10 Financial Regulation
will offer further simplifications. The Commission also reports
that the EDF has not yet been integrated into the main Commission
management information system, and that accruals-based accounting
for the EDF will be implemented in 2008.
The Government's view
13.12 In his 22 May 2007 Explanatory Memorandum,
the Parliamentary Under-Secretary of State at the Department for
International Development (Mr Gareth Thomas) notes that there
are no major policy implications stemming from the report, which
he says provides "a detailed summary of another largely positive
year, a reasonably frank assessment of the challenges for the
final year of EDF9 and a positive assurance that the main challenge
of full commitment of EDF9 funds will be met."
13.13 He notes that the Commission has provided plausible
evidence in the report to substantiate its claim that its 2006
objectives have largely been achieved, and welcomes this. He continues
as follows:
"The chief Commission objective for 2006
was to work to ensure all EDF9 funds are on track to be fully
committed (including recommitted funds) before EDF9 expires in
December 2007. The Commission have signalled that, in 2006, they
were on track to do this. Achieving full commitment of funds will
be important for EDF9 programmes to be as fully effective as intended,
and will represent a positive indication of support to beneficiary
countries. We support this objective.
"The Commission met one of its two 2006
RAL targets. It nonetheless has made good progress and we are
reassured that the Commission states it is confident of meeting
its 2007 target.
"Another 2006 objective was to improve the
functioning of control systems and improve impact through better
quality control. The report provides details of actions taken
following recommendations from the ECA. We particularly welcome
the impact the Quality Support Group (QSG) appears to be having
on improving project quality. We will continue to monitor the
Commission's staffing situation and encourage it to provide an
adequate level of staffing, including for the management of OCT
programmes where delays were experienced in 2006. We will also
continue to second DFID staff when appropriate.
"The Commission identifies the main risk
to the EDF in 2007 as the failure of a sufficient number of Member
States to ratify EDF10 before the expiry of EDF9 by December 2007.
Such a failure might require enactment of transitional measures
to guarantee continuity of funding (as was the case for the EDF8
to EDF9 transition). The UK expects to meet the Commission's November
2006 deadline to ratify EDF10. So far, Ireland, Sweden, Hungary,
Finland and Slovenia have ratified EDF10. The Commission remains
concerned that some other Member States may not meet the deadline".
Conclusion
13.14 We agree with the Minister that the report
is clearly written and provides a wide range of information to
support the Commission's assessment of financial management in
2006.
13.15 Last year, the Commission noted that "the
next two years represent a critical period for the Commission
[in which] it must work fast to follow through on its political
commitment to deliver more and better aid in ACP states, and in
Africa in particular. Key to this is continuing to improve its
management of the EDF".[46]
As with the 2005 Report, it is again gratifying to note further
steady progress in the implementation of the reform process begun
in 2000, particularly since EDF10 will involve a further €22
billion of European taxpayers' money.
13.16 In this connection, although it would appear
that the UK is on track to fulfil its commitment to ratify EDF10
before the expiry of EDF9 in December 2007, some other Member
States are not. This is not the only instance in which some Member
States appear to be dragging their feet on playing their part
in meeting the EU's widely-trumpeted aid commitments, particularly
towards Africa — see in particular the Commission Communication
on "Keeping Europe's promises on financing for development",
which we considered on 2 May.[47]
We should be grateful if the Minister would write before the end
of the year to let us know what the situation then is, and in
particular who has, and who has not, ratified, and what the implications
then are.
13.17 In the meantime, we now clear the document,
which we are reporting to the House because of the widespread
interest in the subject matter.
45 Earlier EDFs were: EDF1 established by the Treaty
of the European Economic Community in 1958, EDF2 by the 1st
Yaoundé Convention of 1964, EDF3 by the 2nd
Yaoundé Convention of 1969, EDF4 by the 1st
Lomé Convention of 1975 and EDF5 by the 2nd
Lomé Convention of 1979. Back
46
SEC (06) 977, page 13. Back
47
(28554) 8451/07 + ADD 1: HC 41-xx (2006-07) para 9 (2 May 2007). Back
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