8 Clearance of accounts procedure
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15899/10
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| Special Report No. 7/2010 of the European Court of Auditors: Audit of clearance of accounts procedure
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| Legal base | —
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| Deposited in Parliament | 9 November 2010
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| Department | Environment, Food & Rural Affairs
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| Basis of consideration | EM of 3 December 2010
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| Previous Committee Report | None
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| To be discussed in Council | No date set
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| Committee's assessment | Politically important
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| Committee's decision | Cleared
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Background
8.1 Annual EU agricultural expenditure currently amounts to some
€54 billion, representing close to 50% of total EU payments,
and its management is essentially shared between Member States
and the Commission, with aid being paid by designated national
paying agencies, and reimbursed by the Commission (which then
establishes the amount chargeable to the budget through the clearance
of accounts procedure). The purpose of this procedure, as set
out in the relevant Financial Regulation (No 1605/2002), is to
ensure that funds are used in accordance with the applicable rules,
and to enable the Commission to ensure final responsibility for
the implementation of the budget.
8.2 Prior to 1996, the Commission took a single decision
which covered both the reliability (completeness, accuracy and
veracity) of the paying agencies' accounts and the legality and
regularity of the underlying expenditure, but, as this resulted
in long delays in the final clearance, the procedure has now been
split into two separate decisions:
- an annual ("final")
decision covering the reliability of the annual accounts submitted
by accredited paying agencies, for which the Commission requires
a certification conducted by an independent audit body (certification
body);
- conformity decisions on expenditure to be excluded
from EU financing because it has not been effected in compliance
with the relevant rules.
There have since been changes under which certification
bodies must now certify, not only the accounts, but the functioning
of the internal control system of the paying agency; include in
their certification report a statement of assurance issued by
the director of that agency; and verify and validate control statistics
sent by Member States to the Commission.
The current document
8.3 The Court says that its approach to the audit
in this document reflects these two distinct stages, in that it
has looked at the specifics of each and at the procedure as a
whole. It adds that it carried out field audit work between November
2008 and May 2009 in ten Member States (including the UK) and
with the Commission, and that the scope of each audit covered
the planning, testing and reporting by the certification body,
together with the relevant underlying documentation.
FINANCIAL CLEARANCE OF ACCOUNTS
8.4 The Court says that it has sought to assess the
role of certification bodies and the quality of the various assurance
elements provided by national entities, and in particular has
examined:
- whether the Commission has
sufficient information to take its annual financial clearance
decision (which it has to do by 30 April each year);[49]
- whether the financial clearance procedure provides
elements of assurance as regards the legality and regularity of
underlying transactions.
Reliability of accounts
8.5 The Court says that it looked at whether the
work of certification bodies enables the Commission to take a
decision, and whether weaknesses found were correctly reflected
in that decision. It found that certain certification bodies relied
extensively on the work of the internal audit units of the paying
agencies; that instances of non-compliance with the Commission's
requirements included inadequate documentation; and that the information
presented by paying agencies listing cases of undue payments resulting
from irregularities — and hence relevant to the amounts
to be recovered — had in most cases not been sufficiently
tested by the relevant certification body.
Legality and regularity of underlying transactions
8.6 The Court notes that the task of certification
bodies has now extended to include certifying the satisfactory
functioning of internal control procedures, verification and validation
of control statistics, and assessing the quality of on-the-spot
checks, but that they are not required to verify at the level
of the final beneficiary that transactions are eligible. It noted
a lack of identification of the key and ancillary controls,[50]
and limited testing of the reliability of systems; limitations
in the validation of control statistics; and insufficient verification
of on-the-spot checks. It also looked at the statement of assurance
which the director of a paying agency is now required to provide,
and says that it views this as a positive step, but that its use
by the Commission for assurance purposes is dependent on the methodology
used in preparing it, where it identified a number of weaknesses.
In addition, it suggests that the opinion issued by certification
bodies on the statement of assurance has limited added value.
CONFORMITY CLEARANCE OF ACCOUNTS
8.7 The Court notes that conformity clearance in
its present form was introduced in 1996, and that from 1999 to
the end of 2008, the Commission took 29 such decisions, resulting
in the exclusion of €5.582 billion from EU financing. It
says that this part of the audit was to determine how these conformity
decisions are taken, and the extent to which they exclude irregular
payments from EU financing. In particular, it sought to establish:
- whether the procedure allows
for a sufficient coverage of expenditure;
- whether the financial damage to the budget by
the impact of irregular payments is adequately compensated by
conformity corrections; and
- whether conformity decisions are taken in a timely
manner.
Coverage of expenditure
8.8 On the coverage of expenditure and risks by the
Commission's conformity audits, the Court notes that the Commission
determines each year the measures and Member States to be audited
on the basis of a risk analysis, carried out across a range of
agricultural expenditure, with the greatest weight being placed
on audit areas with high expenditure. However, it points out that
these covered only 44% of agricultural expenditure in 2006, 25%
in 2007 and 47% in 2008, with some areas being covered more than
once, but others not at all. It adds that the Commission's ability
to exclude expenditure in this way is further limited because,
in order to provide a degree of legal certainty for Member States,
financing may not be refused where expenditure is incurred more
than 24 months before the Commission notifies the Member State
in writing of its inspection findings. The Court also says that
it is not possible to determine accurately the total amount which
the Commission may be unable to exclude as a result of this rule,
as the necessary information is not available, but it suggests
that the total amount is "not insignificant".
Calculation of financial damage to the budget
8.9 The Court notes that the Commission is required
to assess the amounts to be excluded, taking into account the
nature and gravity of the infringement and the financial damage
caused to the EU, but that it has the discretion to determine
how it establishes the amount of financial correction. It notes
that the Commission has three calculation methods — where
the error relates to a specific case, the correction equals the
value of the erroneous transactions; where it is revealed by a
sample of transactions, the correction is based on an extrapolation
of those results; and, where neither of these methods is possible,
a flat rate[51] correction
(based on a percentage of the expenditure at risk) is applied.
However, the Court found that, for each of the conformity decisions
analysed in 2007 and 2008, flat rate corrections, far from being
applied only when the other two methods are not possible, were
used for the vast majority of corrections: and it also comments
that, since they are based on expenditure at risk, it is not possible
to establish a link with the real amount of irregular payments,
so there is no means of knowing whether the correction they provide
is adequate, insufficient or excessive.
Timing of conformity decisions
8.10 The Court says that, although it has previously
urged that the Regulation on the financing of the common agricultural
policy should include precise time limits at all stages of the
clearance procedure in order to avoid unacceptable delays, this
suggestion was not taken up when the Regulation was amended, and
that the Commission has instead set indicative targets for completing
the procedure (of 450 days where conciliation does not take place,
and 645 days when it does). However, it points out that an assessment
of the time taken for the conformity decisions in 2007 and 2008
shows that this was significantly in excess of these targets,
due in many instances to the Commission having to carry out further
audits in a Member State. It also notes the procedure is obviously
lengthened when Member States request conciliation, and that the
European Parliament has observed that conciliation has not reduced
the number of cases brought before the Court of Justice, and that,
instead of serving to reconcile positions, has provided an opportunity
for Member States to appeal, thus casting doubt on whether the
procedure can be justified. Finally, the Court notes that, at
the end of 2008, the clearance of accounts was not complete for
any year later than 2001.
THE CLEARANCE OF ACCOUNTS PROCEDURE AS A WHOLE
8.11 The Court suggests that the procedure still
takes too long, and has become divorced from a particular budgetary
exercise, and it adds that, at the end of the procedure, the Commission
does not formally recognise, at a given point in time, the expenditure
chargeable to a particular budgetary year, as stipulated by the
financial regulation, meaning that the expenditure that year cannot
not be considered as fully cleared. It also observes that the
more recent changes have blurred the distinction between what
is to be achieved in terms of reliability and legality and regularity.
Recommendations
8.12 In the light of its earlier comments, the Court
recommends that the clearance of accounts procedure as a whole
should be reviewed with a view to addressing a number of points,
including:
- the objectives set for the
various phases and for the procedure as a whole, and whether the
respective roles and responsibilities of the different parties
should be more clearly defined in the relevant regulations, rather
than frequently modified over time by means of guidelines;
- the establishment of time limits for all stages
of the procedure, and in particular for the Commission to take
its final decision on a specific financial year;
- whether the Commission should at the end of the
conformity clearance procedure recognise the amount of expenditure
chargeable to the accounts of a given financial year, and inform
the discharge authorities accordingly;
- whether the financial statement should identify
for each Member State the amounts by budget area and budget year
which may be subject to further verification;
- whether the power for the Commission to sanction
Member States for control weaknesses, currently exercised through
the conformity decisions, should be separated from the clearance
of accounts procedure;
- whether the clearance of accounts procedure,
as regards the reliability of the accounts, would be further enhanced
by the continued supervision of the work of certification bodies
by the Commission, in particular through specific audit visits.
The Government's view
8.13 In his Explanatory Memorandum of 3 December
2010, the Minister of State for Agriculture and Food at the Department
for Environment, Food & Rural Affairs (Mr Jim Paice) says
the Court makes a number of recommendations which are of interest
to the UK, and which are consistent with the Government's objective
of more risk-based and proportionate financial control over CAP
funds at EU level. He says that the Government is working with
the devolved administrations and other Member States to encourage
EU institutions to explore some of these further, particularly
with regard to the management of the CAP in the next Financial
Perspective.
Conclusion
8.14 Although we are content to clear this document,
it raises a number of important points in relation to the clearance
of accounts procedure, and we are therefore drawing it to the
attention of the House.
49 If the Commission cannot accept the accounts of
a paying agency, it postpones ("disjoins") acceptance
to a later date. Back
50
Key controls are checks required to verify substantive elements
in a claim (such as the existence of the subject), whilst ancillary
controls relate to administrative operations needed to process
claims correctly. Back
51
Of 2%, 5%, 10%, 25%, or higher, depending on the seriousness,
whether it is linked to key or ancillary controls, and whether
or not it is recurrent. Back
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