2 Financial management
| (32220)
16662/10
+ ADDs 1-2
COM(09) 650
| Commission Report on the follow-up to the discharge for the 2008 financial year (Summary)
|
| Legal base | —
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| Document originated | 18 November 2010
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| Deposited in Parliament | 24 November 2010
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| Department | HM Treasury
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| Basis of consideration | EM of 18 December 2010
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| Previous Committee Report | None
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| To be discussed in Council | Not known
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| Committee's assessment | Politically important
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| Committee's decision | For 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
|
Background
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.
Conclusion
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).
Back
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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