11 Audit
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10336/07
+ ADD1
COM(07) 280
| Annual Report to the Discharge Authority on internal audits carried out in 2006
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| Legal base | — |
| Document originated | 30 May 2007
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| Deposited in Parliament | 6 June 2007
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| Department | HM Treasury |
| Basis of consideration | EM of 13 June 2007
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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 | Cleared
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Background
11.1 The Commission's Internal Audit Service (IAS) was set up
in July 2001 as one of the first of the reforms initiated by the
then Commissioner, Lord Kinnock. This was put in place as an independent
service for the European Commission and Directorates-General were
also given small internal audit units, supervised by the IAS and
known as Internal Audit Capabilities (IACs). The IAS is required
by the Financial Regulation, Regulation (EC, Euratom) No 1605/2002
as amended by Regulation (EC, Euratom) No 1995/2006, to submit
an annual report to the Discharge Authority (the European Parliament
and the Council).
The document
11.2 This Report covers the 37 audits and reviews carried out
in 2006 by the IAS. The document summarises these and the findings
made. Details of the objectives and scope of each audit, and statistics
showing the number of recommendations accepted by those audited
are in an accompanying Staff Working Document.
11.3 The Report, after a short introduction, first
discusses the working environment for internal audit, developments
in the internal audit process, implementation of the 2006 IAS
audit plan and the responses of those audited to IAS recommendations.
The second substantive section of the Report summarises the IAS's
findings under six headings
11.4 In relation to Quality review of all IACs
the IAS assessed conformity of the 32 IACs with the auditing standards
of the Institute of Internal Auditors. Eleven were found to be
generally compliant; 17 were partially compliant. 30 IACs complied
with the Institute's code of ethics. The IAS concluded that there
was a clear need for a common definition of the audit universe,
risk assessment and coordinated audit planning.
11.5 Under Governance, planning and organisation
the IAS:
- examined the Commission's monitoring
of Community law and proposed the introduction of a risk-based
plan for the transposition of Directives, including a more systematic
approach to verification of Member States' implementing measures
and better prioritisation and time monitoring;
- audited the effectiveness and
efficiency of the strategic planning and programming/activity-based
management process in five Directorates-General and considered
that further progress was needed to enable them to take ownership
of the process and maximise benefits for internal management;
and
- on the basis of its audit of IT management and
systems in four Directorates-General, made recommendations on
physical security, disaster recovery, project management, monitoring
the performance of contractors and the protection of personal
data.
11.6 As for Management of EU funds the IAS:
- examined how the Commission
verifies Member States' control systems for the Structural Funds
and recommended improvements in reporting requirements, establishing
a common audit strategy, better coordination, improved compliance
with audit standards and clearer disclosure of findings in Annual
Activity Reports;
- audited the Financial and Administrative Framework
Agreement with the UN and identified a risk (which it has been
invited to quantify) of Community funds being mis-spent; and
- following its audit of the compliance, efficiency
and effectiveness of ex-post controls on research activities,
recommended that the objectives and strategy of these controls
should be better defined.
11.7 In relation to Human Resources Management
IAS reviews covered planning, recruitment and selection, mobility,
underperformance and absenteeism. The IAS made a number of recommendations,
including:
- the need for a greater coordinating
and monitoring role for human resources management;
- the need for integration of human resources management
into the Commission's strategic planning/management process; and
- more practical suggestions such as the development
of indicators and targets.
11.8 The IAS says it considered the implementation
of the Commission's new Accruals-based Accounting System
and carried out a specific audit on its implementation in the
Directorate-General for Education and Culture (DG EAC). It concluded
that DG EAC's systems appeared inadequate to ensure the completeness,
accuracy and reliability of the accounting data and that that
the year-end accounting entries did not give a true and fair view
of the Directorate-General's financial position.
11.9 Finally, on Follow-up, the IAS reports
that significant delays still existed in the implementation of
its recommendations and that this had prevented some follow-up
audits being carried out.
11.10 In a concluding section of the Report the IAS
draws the following five conclusions:
- Continue improvement efforts
— although there have been clear improvements in the Commission's
internal control systems, there is scope for further improvement
in the areas of ex-post controls, IT, implementation of
the new accounting rules and contract management;
- Follow-up, a recurring issue
— greater effort must be made to ensure systematic and swift
follow-up of audit recommendations;
- Integrated Human Resources Strategy
— DG ADMIN (the central service in charge of human resources
management) should develop an integrated human resources strategy
for the Commission;
- Improve the efficiency and robustness of internal
audit architecture — Professionalism
should be improved and the recently-introduced coordinated planning
process should be solidly embedded to improve the overall efficiency
of internal audit work in the Commission; and
- Annual Governance Statement
— The Commission should describe (in the annual synthesis
report summarising the Annual Activity Reports) its governance
policy and practice, including its risk management system, strategic
planning, code of ethics, internal control systems, internal audit
and the roles of the Accountant and the Audit Progress Committee.
The Government's view
11.11 The Economic Secretary to the Treasury (Ed
Balls) says that:
- the Government thinks this
report provides a useful summary of the work of the Commission's
Internal Audit Service and shows that the service has an important
role to play in improving the Commission's governance and internal
control;
- the report raises some concerns such as the slow
rate of implementation of IAS recommendations. If the Commission
wishes to demonstrate that it takes the issues of reform and improvement
seriously it must take action to improve this; and
- in relation to the specific concern about the
reliability of DG EAC's accounting data, the Government will seek
evidence of improvements during the Council's Budget Committee's
discussions on the next report of the European Court of Auditors.
Conclusion
11.12 Effective management of the Community's
financial and other resources is vitally important both intrinsically
and to the citizen's perception of the Community. This document,
which we clear, gives some hope that efforts to improve the Commission's
financial and more general management are making progress. We
will be further encouraged when we see consistently better results
being recorded by the European Court of Auditors.
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