1 European Development
Fund (EDF) expenditure
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| European Court of Auditors' Annual Report on the Activities Funded by the Seventh, Eighth and Ninth European Development Funds (EDFs)
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| Legal base | Article 248 TEC
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| Deposited in Parliament | 10 November 2010
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| Department | International Development
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| Basis of consideration | EM of 24 November 2010
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| Previous Committee Report | None; but see (31188) —: HC 5-iv (2009-10), chapter 1 (15 December 2009)
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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 | Not cleared; for debate as part of the debate recommended elsewhere on the annual audit of the EU budget
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Background
1.1 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 (OCTs). The
7th EDF was established in 1990 and the 8th EDF in 1995. The 9th
EDF was signed in 2000 and came into force in 2003 under the Cotonou
Agreement.[1] The 9th EDF
provides €13.8 billion for Community assistance for the period
2003-2007, in addition to all uncommitted funds from previous
EDFs.
1.2 The EDFs are funded by the Member States, governed
by its own financial regulation and managed by a specific committee.
The European Commission is responsible for the financial implementation
of operations funded with resources of the EDFs. The UK share
of the 9th EDF is 12.69%.
1.3 The EuropeAid Co-operation Office is a Directorate-General
(DG) of the European Commission which provides development assistance
worldwide. According to its website, it turns "into practical
action the strategies and policies designed by DG Development
for the African, Caribbean and Pacific countries, and DG External
Relations for the other regions and countries of the world",
and says that its "primary mission is to put the European
Commission's external aid instruments to use in close collaboration
with its partners." Commonly known as EuropeAid, it says
that it "aims to deliver development aid in an efficient
and effective way", and that its "focus is on maximising
the value and impact of aid funding by making sure support is
provided in a speedy and accountable fashion." [2]
1.4 The EDFs are managed under three main arrangements:
centralised, joint and decentralised management. Under centralised
management (40% of payments in 2009), the Commission implements
the aid activities directly; this relates mainly to budget support.
Under joint management (14% of payments in 2009), international
organisations are responsible for implementing Community funded
actions, provided that the accounting, audit, control and procurement
procedures of the organisations offer guarantees equivalent to
internationally accepted standards; EuropeAid's main partners
are the United Nations' agencies and the World Bank. Under decentralised
management (46% of payments in 2009), the Commission entrusts
the management of certain tasks to the authorities of the beneficiary
countries, with EC delegations working with National Authorising
Officers (NAOs) who in turn work with the relevant local Ministries
(the ECA's diagram of this process is reproduced at the Annex
to this chapter of our Report).
The Court of Auditors' Report
1.5 The European Court of Auditors' (ECA) Report
includes a positive statement of assurance on the European Development
Fund's (EDF) expenditure in 2009. According to the Report, that
expenditure amounted to:
— Total
payments: €3.123 billion[3]
— Total individual commitments: €4.141
billion[4]
— Total global commitments: €3.405
billion4
1.6 The ECA Report focuses on the accounts, transactions
and systems used in the EDF. It is based on an assessment of a
representative statistical sample of 50 financial and individual
commitments and 170 interim and final payments made by EuropeAid
and Delegations as well as audit visits to partner countries and
other data sources.
1.7 The ECA concludes that:
— the
EDF accounts for 2009 fairly present the financial position in
accordance with the provisions of the Financial Regulation and
accounting rules;
— the underlying transactions are legal
and regular in all material aspects; but
— the Commission's supervisory and control
systems were only partially effective in preventing or detecting
and correcting errors.
1.8 The ECA notes that EuropeAid has remedied some
shortcomings observed in the previous ECA Report. In particular,
the ECA welcomes the substantial improvement in the decision making
framework for budget support eligibility, and for disbursement
conditions. However, the ECA also notes a high frequency of non-quantifiable
errors, due to the lack of formalised and structured demonstration
of compliance with payment conditions.
1.9 In response, EuropeAid:
—
confirmed that it finalised a revised framework for monitoring
and reporting progress in public financial management in June
2010, which focuses on results achieved against initial baseline
expectations; country reports using this revised approach will
be the basis on which eligibility will be assessed for disbursements
for the remainder of 2010 and beyond;
— also recognises the importance of greater
rigour in defining performance targets, calculation methods and
verification sources of budget support, which it says is now receiving
greater attention during EuropeAid's peer review process (Quality
Support Group) for the consideration of new programmes (paragraphs
32 and 55).
1.10 In addition, the ECA notes the Commission's
introduction of both new guidance on budget support to fragile
states which requires certain very basic elements of public financial
management systems to be in place before budget support can be
granted; and a more logical sequence for financial and operational
checks in the payment approval process.
1.11 As in previous years, the ECA highlights a lack
of capacity of most NAOs in partner countries, resulting in poorly
documented and ineffective checks. The ECA also detects shortcomings
in the financial procedures and controls instituted by implementing
organisations and supervisors.
1.12 In response, EuropeAid:
— confirmed
its plans to supplement the training courses already provided
by Delegations to NAOs and the extensive information on EuropeAid's
website by disseminating a Financial Management Toolkit by the
end of 2010, which it says will provide basic practical guidance
in an easy-to-use format to help beneficiaries to comply with
financial management and eligibility rules in the Commission's
financial external aid actions;
— also highlighted the work of the delegations
in providing additional checks to offset weaknesses of NAOs.
1.13 The ECA recommends that, in the context of EuropeAid's
planned review of its overall control strategy, it develops a
key indicator for the estimated financial impact of residual errors
as well as to assess the cost effectiveness of various controls.
In response, EuropeAid confirms that work is underway to develop
such an indicator and that it will produce a Communication on
the Tolerable Risk of Error in the field of external aid in 2010
(paragraph 54).
The Government's view
1.14 In his Explanatory Memorandum of 24 November
2010, the Parliamentary Under-Secretary at the Department for
International Development (Stephen O'Brien) welcomes the ECA's
report and its statement of assurance on the EDF.
1.15 He also welcomes the steps the Commission has
taken to address the ECA's previous and latest recommendations.
He also sees the Report as not only most useful for the Commission
in helping to identify opportunities to strengthen their systems,
but also in providing valuable information for Member States on
issues where the Commission needs to, or is, strengthening its
processes. He says that he will continue to monitor the Commission's
financial management performance and use opportunities in the
EDF Management Committee and the Council's Africa Caribbean and
Pacific (ACP) Working Group to follow up on progress in addressing
the issues raised, in particular during the detailed discussions
on the report in 2011.
1.16 He continues his comments thus:
"We recognise the challenges posed by the EDF
structure of having National Authorising Officers and the limited
capacity in many countries. We welcome the Commissions efforts
to train and build capacity in the NAOs and will strongly encourage
them to continue to support work in this area. We will, through
EDF Committees, Working Groups and other opportunities, encourage
the monitoring and evaluation of those who have received training.
This is in addition to their ongoing training for Commission staff
on financial management and programming. We also welcome the Commission's
commitment to provide a "Financial Management Toolkit"
to staff and NAOs.
"Finally, we strongly welcome the Commission's
substantial improvement in the demonstration of eligibility for
budget support, and welcome the revised framework for monitoring
and reporting progress in public financial management. Given that
under EDF 10 roughly 44% of allocated resources are currently
programmed as budget support, it is vital that clear guidelines
and frameworks are in place. It should be noted that where there
are shortcomings in key public financial management (PFM) areas,
the Commission has taken action to stop or suspend budget support,
for example in 2006 in Chad and in Tanzania in 2008."
1.17 Looking ahead, the Minister says that the Court
of Auditors' Report will be considered by the ACP Working Group
in the new year, after which the Council will make a recommendation
to the European Parliament to give the Commission a discharge
on EDF expenditure in 2009.
Conclusion
1.18 Overall EU budget commitments in 2009 totalled
€142.5 billion and payments totalled €118.4 billion.
This perhaps gives the Court's critical remarks about some of
the control aspects of the EDF's €4.141 billion/€3.123
billion some perspective, particularly as the continuing debate
about budget support is essentially between the development professionals,
who regard it as the key to building national capacity in developing
countries, and the auditors, whose natural concern is over the
inherent risks in such an approach.
1.19 This is a debate that we are content for
others to pursue. We therefore recommend that this Court of Auditors'
Report be debated on the Floor of the House as part of the debate
on the annual audit of the EU budget that we are recommending
elsewhere in this Report.[5]
Annex: ECA depiction of the decentralised
management process
1 EDFs 7 and 8 were established under the 3rd
Lome Convention, which preceded the Cotonou Agreement. Back
2
See http://ec.europa.eu/europeaid/index_en.htm for full information
about its activities. Back
3
Gross payments, excluding recoveries. Back
4
The totals of individual and global commitments contain the decommitments.
Source: European Court of Auditors on the basis of data
provided by the European Commission. Back
5
See (32166): chapter 3 of this Report. Back
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