Documents considered by the Committee on 19 January 2011 - European Scrutiny Committee Contents

2 Financial management



+ ADDs 1-2

COM(09) 650

Commission Report on the follow-up to the discharge for the 2008 financial year (Summary)

Legal base
Document originated18 November 2010
Deposited in Parliament24 November 2010
DepartmentHM Treasury
Basis of considerationEM of 18 December 2010
Previous Committee ReportNone
To be discussed in CouncilNot known
Committee's assessmentPolitically important
Committee's decisionFor debate on the Floor of the House, together with the Commission's 2009 report on the fight against fraud, the European Court of Auditors' Annual Report for 2009 and other relevant documents


2.1 Each annual audit of the EU's general and other budgets by the European Court of Auditors is concluded by a discharge given to the Commission by the European Parliament on the recommendation of the Council. But the Commission is required to act on and report back on any observations made by the European Parliament in the discharge decisions and any comments accompanying the Council's recommendation. Any results from action on, and follow-up to, observations comments and recommendations feed into subsequent annual audits.

The document

2.2 This document is a summary report from the Commission about its follow-up to the Council and European Parliament's discharge comments and recommendations in relation to the 2008 budget. It is accompanied by two Staff Working Documents, the first of which details the Commission's replies to the Council's requests and the second to the European Parliament's.

2.3 The Commission identifies a total of 364 requests made to it as part of the 2008 Discharge process, of which:

  • 238 requests were made by the European Parliament;
  • the Commission agrees to take the action requested by the European Parliament for 108 of these;
  • it considers that 120 of the requests relate to actions which are ongoing or have already been undertaken, while it considers that ten are not acceptable for legal reasons or due to institutional prerogatives;
  • 126 requests were made by the Council;
  • the Commission agrees to act upon 61 of them; and
  • it considers that 63 of these requests relate to actions which are ongoing or which have already been undertaken, while it cannot accept two of these requests for legal reasons or due to institutional prerogatives.

The Commission notes that, while it addresses the issues concerning EU agencies in its response to the European Parliament and the Council, further horizontal work on agencies is being addressed by an inter-institutional working group, which is expected to report by the end of 2011.

2.4 The Commission's replies to the European Parliament and the Council are divided into two broad categories — horizontal issues and sectoral issues. On horizontal issues the Commission:

  • notes a positive trend in terms of reduced error rates in the European Court of Auditor's reports in the years preceding the 2008 discharge, although it also recognises that error rates in some parts of the budget (such as Cohesion Policy) remain too high;
  • sets an aspiration that the proportion of the budget which receives a "green light", that is less that a 2% likely error rate, should increase by a further 20% by 2014;
  • notes that the Commissioner with responsibility for audit and financial management presented an "agenda for discharge and audit" to the European Parliament's Budgetary Control Committee in May 2010 — this includes measures to simplify legislation, to establish European Trust Funds, management assurance from Member States, cooperation with supreme audit institutions and national parliaments and action on recoveries and financial corrections;
  • suggests that the concept of tolerable risk of error is an important way to balance risks by ensuring that controls are both effective while also containing costs;
  • refers to its Communication More or less controls? Striking the right balance between administrative costs of control and the risk of error,[16] in which it proposes tolerable risk levels for the policy areas rural development and research, energy and transport;
  • commits itself to bringing forward tolerable risk of error levels for other policy areas in late 2010 and in 2011, but points out that improvements to tolerable risk of error may take a long time to filter through into real results;
  • considers that continued improvements to the reliability of the EU's accounts has improved the underlying data used to prepare the 2009 accounts;
  • suggests that improvements to its own budgeting and forecasting have translated into more realistic draft budgets;
  • notes that the 2009 accounts include more detailed information on the recovery of undue payments and suggests that a standard procedure for the 2007-2013 programming period should result in improved quality of information;
  • says it has speeded up the suspension of payments where irregular activity is discovered;
  • expects, in relation to enhancing Member State accountability, annual management declarations of assurance from accredited national management bodies to improve the quality of data submitted by Member States;
  • considers that such declarations would be more appropriate instruments than national declarations signed at political level and continues to encourage all Member States to submit voluntary declarations on the use of EU funds;
  • notes that it has taken steps to increase the quality of internal audit via improvements to its Annual Activity Reports;
  • considers that this system has now reached maturity;
  • points to improvements in the publication of financial information, notably through refinements to its "Financial Transparency System" website;
  • undertakes to organise a stakeholder conference in April 2011, concerning a new partnership for improving to the Statement of Assurance process; and
  • aims, in relation to reforming the European Anti-Fraud Office (OLAF), to present an amended legislative proposal by the end of 2010, with a view to concluding the legislative process by the end of 2011.

2.5 The Commission's response to the sectoral issues raised by the European Parliament and the Council are dealt with on a heading-by-heading basis:

  • on Own Resources it notes that the number of outstanding reservations on VAT-based Own Resources has reduced from 35 to 12 and that direct verification of Gross National Income-based Own Resources is now applied in almost all Member States;
  • on Agriculture and Natural Resources it points out that continuous improvements are being made to the Integrated Administration and Control System and that these improvements are reflected in conformity audits and in low error rates reported by Member States;
  • on Cohesion, Employment and Social Affairs it notes that the European Court of Auditors' 2008 report was based solely on a sample of expenditure from the 2000-2006 programming period and that it therefore expects that the improvements to financial management which were introduced for the current 2007-2013 programming period should translate into reduced error rates in subsequent Court reports;
  • on Internal Policies, including research, it considers that controls applied to research are generally robust, points out that further efforts have been made to simplify research framework programmes, through its Communication on simplifying the funding of research and development,[17] and expects that these proposals may then be implemented in the Eighth Framework Programme;
  • on External Actions, including the European Development Funds and enlargement, it commits itself to continued improvement of supervisory and control systems including improvements to audit strategy and planning, says that, where EU funds are routed through United Nations organisations, it is cooperating with them in order to obtain the necessary supporting evidence, expects to revise its Guidelines on Budgetary Support by the end of 2010 and undertakes to improve management of pre-accession funds to ensure a better link between financial assistance and political priorities; and
  • on Administrative Expenditure it points out that the Office for Administration and Payment of Individual Entitlements has reinforced its internal control procedures.

The Government's view

2.6 The Economic Secretary to the Treasury (Justine Greening) says that the Government is very disappointed that the European Court of Auditors' annual report on the 2008 EU budget failed to provide a positive Statement of Assurance on the financial management of EU funds and that it notes with concern that the Court's recently published report on the 2009 EU Budget also failed to provide a positive Statement of Assurance. The Minister comments further that:

  • this document provides a useful summary of the actions taken by the Commission to respond to the concerns raised by the European Parliament and the Council;
  • while these actions should lead to improvements to the management of the EU Budget, the Government notes that the pace of improvements in EU financial management remains very slow;
  • the Government considers, for instance, that increasing the proportion of the EU Budget with an error rate of 2% or less by 2014 is not an ambitious enough target;
  • considerable further effort is therefore required by all concerned, notably the Commission and Member States;
  • the Government notes the Commission's comments on improved budgeting — it considers that over-budgeting by the Commission and persistent problems with absorption capacity in some Member States lead to the EU Budget being under spent;
  • it notes with concern that some of the actions set out in the document are only likely to lead to tangible improvements in terms of reduced error rates over the longer term;
  • it remains committed to improving its management of EU expenditure and will publish the third consolidated statement on the use of EU funds in the UK, which is audited by the National Audit Office and presented to Parliament; and
  • the document has no direct financial implications—however, the recommendations and the actions outlined by the Commission may lead to improvements in the EU's financial management, which should increase the effectiveness and efficiency of the EU Budget.


2.7 This document usefully summarises Commission attempts to improve management of the Community's finances. As such we recommend that it should be debated together with the Commission's 2009 report on the fight against fraud, the 2009 report of the European Court of Auditors and other relevant documents, which we have already recommended for debate on the Floor of the House.[18]

16   (31652) 10346/10 + ADDs 1-2: see HC 428-ii (2010-11), chapter 1 (15 September 2010) and HC 428-x (2010-11), chapter 2 (8 December 2010).


17   (31598) 9348/10: see HC 428-i (2010-11), chapter 81 (8 September 2010). Back

18   (31822) 12393/10 + ADDs 1-2 (31913) 13075/10 + ADD 1 (31952) -: see HC 428-vi (2010-11), chapter 1 (3 November 2010 and (32162) - (32166) -: see HC 428-x (2010-11), chapters 1 and 3 (8 December 2010). Back

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