Documents considered by the Committee on 12 January 2011 - European Scrutiny Committee Contents

8 Clearance of accounts procedure



Special Report No. 7/2010 of the European Court of Auditors: Audit of clearance of accounts procedure

Legal base
Deposited in Parliament9 November 2010
DepartmentEnvironment, Food & Rural Affairs
Basis of considerationEM of 3 December 2010
Previous Committee ReportNone
To be discussed in CouncilNo date set
Committee's assessmentPolitically important
Committee's decisionCleared


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.


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.


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.


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.


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.


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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