10 European Agency for Reconstruction:
2008 Accounts
| (31142)
16245/09
—
| European Court of Auditors' Report on the Annual Accounts of the European Agency for Reconstruction for the financial year 2008
|
| Legal base | Article 248 EC
|
| Deposited in Parliament
| 20 November 2008 |
| Department | International Development
|
| Basis of consideration |
EM of 17 December 2009 |
| Previous Committee Report
| None; but see (30122) 15341/08: HC 16-xxxvi (2007-08), chapter 16 (26 November 2008)
|
| Discussed in Council |
To be determined |
| Committee's assessment |
Politically important |
| Committee's decision |
Cleared |
Background
10.1 The European Agency for Reconstruction (EAR) was set up in
February 2000 in response to the urgent need for reconstruction
in Kosovo following the 1999 conflict and was initially responsible
for managing the EU's aid programmes there.
10.2 Following extensions to its mandate in 2001,
2002 and 2004, the EAR became responsible for implementing the
regional Community Assistance for Reconstruction, Development
and Stabilisation programme (CARDS) in Serbia and Montenegro and
the Former Yugoslav Republic of Macedonia (FYROM), as well as
in Kosovo. CARDS aimed
to foster institution-building and good governance, to promote
the development of a market economy and essential infrastructure
and to consolidate civil society. The Agency's head office was
in Thessaloniki, with operational centres in Belgrade, Podgorica,
Pristina and Skopje.[33]
10.3 From 1 January 2007, all pre-accession assistance
is now delivered by the Instrument for Pre-accession Assistance
(IPA) — one of a small number of new Instruments for EU
External Assistance (the other relevant ones being the European
Neighbourhood and Partnership Instrument, the Development Cooperation
Instrument and the Instrument for Stability) which replaced a
plethora of instruments and budget lines. The IPA replaced PHARE
(implementing the acquis communautaire, economic restructuring
and political capacity-building), ISPA (environmental and transport
projects) and SAPARD (agriculture and rural development). All
involved a staged, quality-assured process, which, over time,
sought to ensure that candidate countries were prepared for and
finally enabled to access post-accession funding effectively and
efficiently on their own. Successive Court of Auditors' Reports
have shown that this process, called EDIS — Extended Decentralised
Management System — works.
10.4 The EAR mandate was due to expire on 31 December
2006. In the case of these beneficiary countries, the focus was
shifting from post-conflict reconstruction to capacity building
— the purpose of the IPA. There was no case for retaining
EAR in order to do this for some countries, rather than EC Delegations
via a tried and tested process. But there was a need for a transitional
period, to enable the EAR to complete its ongoing programmes and
handle the inevitable legal, administrative and personnel issues
arising. So the EAR mandate was extended to 31 December 2008.
Thereafter, all pre-accession assistance, in all aspirant countries,
would be delivered under the IPA via Commission Delegations.
10.5 When we considered the Commission report that
recommended this extension, the Minister (Mr Gareth Thomas) described
it as a broadly sensible way forward for implementing EU assistance
to the Western Balkans, and particularly welcomed the prospect
of a single coherent Commission point of contact that could address
aid alongside other issues for the EU and the region. We, too,
agreed that it was a well-made case.[34]
10.6 The Minister nonetheless noted that the transfer
of responsibility for delivery of EU assistance from the Agency
to Delegations was a complex process, which would inevitably involve
some risk of disruption, and undertook to continue to work closely
with the Commission and monitor the situation to ensure that all
possible steps were taken to ensure a smooth transfer of responsibilities.[35]
10.7 The Committee's consideration of the Court's
2007 report noted that the EAR would formally close on 31 December
2008 leaving a six person closure cell to complete the EAR Annual
Report and Accounts for 2008.
10.8 As for 2007, our Report also noted that the
issues raised in the Court of Auditors' report concerning the
transfer of programmes and contracts to the EC delegations in
country had been addressed during this year and were now largely
complete, and that the EAR was also making good progress in completing
reviews and lesson learning. The Minister (Mr Michael Foster)
reported that he was liaising with the EC to ensure these lessons
were brought to bear on the EC's pre-accession programming. He
drew attention to the staffing challenges of transferring responsibility
to the EC Delegations of programmes and contracts from the EAR,
commenting that the Commission had good plans in place to complete
this and staffing levels in the Kosovo Liaison Office had been
brought to levels which would allow adequate management oversight
for both remaining EAR programmes and EC programmes, if EC spending
in Kosovo were to remain in line with original plans. The Commission
had, however, more than doubled the volume of EC funding to Kosovo
through the Instrument for Pre-Accession (IPA), from €60
million (then £47 million) to €122.7 million (then £96.6
million), with the prospect of a further €50 million (then
£39 million); EC programming for IPA for 2009 was to be similarly
doubled from the planned spend of €60 million (then £47
million) to €120 million (then £94 million); as there
had been no increase in staff levels to meet this additional burden,
he was actively pursuing this issue with the Commission because
of his concern that the Commission was not acting fast enough
to ensure that all the enlarged EC and EAR programmed funds would
be adequately supervised.
Our assessment
10.9 The Committee found it encouraging to see further
evidence that the Agency was continuing to play its part in ensuring
a smooth transition. What was less certain, however, given the
Minister's comments, was that the Commission was likewise rising
to the challenge; events not only in Kosovo but also in Serbia,
FYROM and Montenegro indicated that the IPA's capacity-building
role was likely to become even more important than hitherto. We
accordingly asked the Minister to write as soon as practicable
to let us know what progress he had made:
— in
ensuring that the EAR's good progress in completing reviews and
lesson learning was brought to bear on the EC's pre-accession
programming; and
— with his concerns the Commission was
not acting fast enough to ensure that staff levels are sufficient
to ensure that all the enlarged IPA programming for 2009 was adequately
supervised.
10.10 In the meantime, we cleared the document.[36]
The Court of Auditors' 2008 Report and the Agency's
replies
10.11 As in previous years, the Court of Auditors
state that the EAR's annual accounts "present fairly in all
material respects … the results of its operations and its
cash flows for the year then ended, in accordance with the provisions
of its Financial Regulation," and that the Agency's accounts
were "in all material respects, legal and regular."
10.12 In his Explanatory Memorandum of 17 December
2009, the Minister of State at the Department for International
Development (Mr Gareth Thomas) says that the EAR successfully
transferred programmes and contracts to the EC Delegations in
country during 2008, enabling an orderly and phased closedown
period leading up to 31 December, and completed reviews and lesson
learning. He also says that he is liaising with the EC to ensure
these lessons are brought to bear on the EC's pre-accession programming,
again noting that EC programming in the region is now channelled
through the Instrument for pre-Accession (IPA).
The Government's view
10.13 The Minister points out, however, that, notwithstanding
their overall positive view, the Court of Auditors noted two irregularities:
— the
EAR made a $1,399,132 grant to UNICEF without completing the necessary
procedures. The EAR explained that after the Serbian authorities
had cancelled a project, they had chosen to reallocate money rapidly
to UNICEF rather than lose it. Improving child health was one
of the objectives of the EAR's Serbia programme, and UNICEF were
able quickly to present a quality project;
— for five small audited projects, with
a total value €528,000 (£481,000), the EAR Evaluation
Committee did not have documents detailing why they had decided
to pass over the views of local assessors. The EAR replied that
their Evaluation Committee was not bound by the views of local
assessors, and had in any case disagreed with the assessor's views
in the five projects concerned.
10.14 On the latter point, the Minister notes that,
after he consulted them on the nature of the local assessor's
objections, the Court confirmed that their audit had been desk-based,
and that they were not criticising the rationale behind the EAR's
decision not to include local assessors' views; they were, he
explains, more concerned with the process point — that proper
records should be kept — and had no opinion on the merits
or otherwise of the local assessors' views. As the EAR had now
closed down and its staff disbanded, the Minister says it has
not been possible to ascertain the nature of the local assessors'
comments; nonetheless, while the EAR did not have to take these
views into account, he says that "clearly more thorough documentation
would have been beneficial", and that he is "closely
monitoring ongoing instruments to ensure full and thorough documentation
is maintained."
Conclusion
10.15 The EAR has now been successfully wound
up. In the Committee's estimation, there is nothing in the foregoing
that raises questions with regard to the EAR's winding up that
have not been satisfactorily dealt with. Its responses to the
Court's adverse comments on these two aspects of its last year
of operation seem reasonable.
10.16 To a commendable extent this is because
the Minister has not taken the Court's observations and the EAR
responses entirely at face value. On the contrary, he has done
all that he could to investigate the procedural one and —
most importantly — is now doing what he can to make sure
that the lessons are incorporated into the implementation of the
successor financial instruments (principally the IPA, but also
the European Neighbourhood Partnership Instrument).
10.17 Looking ahead, given the implications for
these successor Instruments, the Committee will expect the Minister
to ensure that, when he comes to report on their performance,
he comments in particular on whether he has been successful in
his endeavours to ensure that these lessons have been successfully
incorporated into their implementation on the ground.
10.18 At the same time, we remind the Minister
that we would like his assessment to include information on what
transpired with regard to his colleague's concerns of a year ago
about Commission staffing plans and possible implications for
the adequate supervision of the enlarged IPA programming for 2009.
10.19 In the meantime, we clear the document.
33 For historical reasons, the CARDS programmes for
Albania, Bosnia and Herzegovina and Croatia were implemented in
what is known as a "directly centralised but deconcentrated
way", by Commission Delegations. Back
34
(27183) 5275/06: see HC 34-xviii (2005-06) chapter 15 (8 February
2006). Back
35
(29135) 15137/1/07: see HC 16-viii (2007-08), chapter 17 (16 January
2008). Back
36
See headnote: (30122) 15341/08: HC 16-xxxvi (2007-08), chapter
16 (26 November 2008). Back
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