European Scrutiny Committee Contents

12 Financial management



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COM(11) 104

Commission Report : Member States' replies to the Court of Auditors 2009 Annual Report:

Legal base
Document originated28 February 2011
Deposited in Parliament4 March 2011
DepartmentHM Treasury
Basis of considerationEM of 21 March 2011
Previous Committee ReportNone
To be discussed in CouncilNo discussion planned
Committee's assessmentPolitically important
Committee's decisionCleared


12.1 The Commission is obliged to inform Member States of the references to them in the annual reports of the European Court of Auditors and to invite them to respond. The Commission publishes a report on those responses.

The document

12.2 In this document the Commission reports on the responses of Member States to the references to them made in the European Court of Auditors 2009 Annual Report.[53] The Commission letter to Member States inviting response included three annexes — a questionnaire based on the paragraphs in the audit report referring to each Member State, a questionnaire based on the findings made by the Court during missions to Member States and a two-part questionnaire on general views related to shared management and on the audit report itself. The Commission's Report on the responses it received is accompanied by a Staff Working Document with a more detailed summary of all the responses.

12.3 In the document the Commission first discusses the Court's 2009 Statement of Assurance, noting that:

  • the Court gave, for the third year in succession, an unqualified positive Statement concerning the reliability of the EU accounts;
  • the information on recoveries of irregularly paid amounts and other corrections in the notes to the final accounts had improved;
  • only one area of spending (Cohesion) now has a likely error rate above 5%; and
  • the Court assessed that payments from the budget continue to be materially affected by error and that supervisory and control systems were partially effective.

12.4 The Commission next discusses the responses of the Member States to the first two questionnaires about actions taken to rectify errors as well as the timing, content and expected outcomes. It says that replies in relation to the first questionnaire (on the paragraphs in the audit report referring to each Member State) were detailed, with very strong focus on the Revenue, Agriculture and Natural Resources and Cohesion policy areas. The Commission noted that the Court's audit work in the Agriculture and Natural Resources policy area also highlighted the effectiveness of systems and the fact that the 2009 Annual Activity Report of the Director General for Agriculture and Rural Development contained a reservation in respect of the expenditure under the IACS (Integrated Administrative and Control System) in Bulgaria and Romania — both countries replied that actions had been taken with some still ongoing.

12.5 In relation to the second questionnaire (on the findings made by the Court during missions to Member States) the Commission says that:

  • detailed responses were also received for this section, with most related to the Agriculture and Natural Resources and Cohesion policy areas;
  • the Court had previously provided its findings in the form of Statements of Preliminary Findings (findings arising from the audit work of the Court, which are sent to the auditee); and
  • Member States' responses were therefore considered a follow up to the actions already undertaken following the receipt of the initial Statement of Preliminary Findings.

The Commission summarises the responses as follows:

  • in total 24 Member States were visited by the Court;
  • those with a large number of findings (more than ten) included France, Germany, Greece and Spain (the UK had ten findings);
  • generally, quantifiable errors were accepted by Member States and the necessary corrective actions were reported to have been taken;
  • actions have been taken in over 50% of cases and either have been completed or are ongoing (the UK accepted and took actions on eight findings);
  • in most cases where no action was taken, justifications and supporting documentation were provided; and
  • no action was taken for 18 findings, partly due to outstanding information being requested from the Commission or a disagreement with the nature or seriousness of the findings (the UK did not take action on two findings).

12.6 On Member States' replies to the third questionnaire (on general views related to shared management and on the audit report itself) the Commission says first that on the question specifically addressed to Member States' Supreme Audit Institutions (SAIs), about the usefulness of the single audit principle (SAP), their level of materiality threshold and how EU reports on payments are used, responses indicated that:

  • nearly half the SAIs (including the UK's) highlighted the potential benefits of the SAP, although some others were concerned about the independence of the institutions being compromised;
  • in general, SAIs advised caution and noted that in any case, assurance will be required at each level of the pyramid in order to ensure the workability of the principle;
  • the majority applied a materiality threshold between 0.5% and 2%, with possible variations (the UK applies 0.5% to 1%); and
  • many SAIs found the information and data provided by the Commission reports on payments useful in the context of their audit work.

12.7 Secondly, in relation to the adoption of simplification in Rural Development policy, the Commission says that:

  • over half of the Member States stated that not only were they in favour of the idea but that they had gone further with the introduction of new initiatives to underline its importance; and
  • Member States also highlighted their cooperation with each other and ongoing dialogue with the Commission in defining and implementing simplification.

12.8 Thirdly, regarding Cohesion policy, the Commission says three issues were raised:

  • on stricter eligibility criteria, some Member States suggested stricter rules were necessary and required from a legal point of view, while others indicated that EU level eligibility rules were not specific enough for the needs of the programmes and that greater emphasis should be placed on programme specific rules;
  • on procurement, most Member States favoured more training for national and regional authority staff as well as beneficiaries to address the complex nature of the rules and clearer guidelines were considered a necessity; and
  • on management verifications, half the Member States agreed that more precise eligibility rules were required at the EU and national levels, however, some disagreed as they believe this was not an optimal solution — the UK said that the Commission had already significantly strengthened its supervisory role in shared management and that any further increase in its controls will erode Member States' competence.

12.9 The Commission concludes its Report by saying that:

  • the results of the Court's 2009 Annual Report illustrate the continuing improvement of the performances of all involved in the management of EU funds;
  • the Court's estimate of error has for the third year in a row fallen, a good opinion on the accounts has been given and the error rate in the Cohesion policy area has fallen significantly, but with a clear need for further sustained improvement;
  • Member States were encouraged by the improvements noted in the Court's findings and, particularly, the significant decrease in the most likely error rate in the Cohesion policy area;
  • they consider, however, that closer cooperation with the Commission is essential, especially in the complex field of procurement;
  • guidance and support in the form of training programmes and targeted guidelines were also highlighted as essentials that needed to be continually addressed;
  • the Commission remains firmly committed to improving EU financial management further and believes its current proposal for a recast Financial Regulation,[54] particularly to set out the control and audit obligations of the Member States in the Financial Regulation and to further simplify and rationalise the rules applicable to EU funds and programmes, will address the issues highlighted by both the Court and the Member States;
  • it believes both proposals will improve the quality of spending significantly; and
  • it will continue to focus its attention on sustaining the positive trend in the evolution of sound financial management and will push for even closer cooperation with the Member States to address shortcomings identified in the Court's report.

The Government's view

12.10 The Economic Secretary to the Treasury (Justine Greening) says that the Government:

  • welcomes this report and the opportunity given to Member States to respond to the Court's findings;
  • takes this process seriously, as evidenced by sending us, and the Lords EU Committee, a copy of its response to the Commission in January 2011;
  • considers that the Commission's report underlines shared views across Member States with regard to the need for progress in the simplification of onerous rules and regulations; and
  • believes that further steps are urgently required to bring about meaningful simplification of eligibility criteria and a more proportionate and risk-based approach to controls and audit.

The Minister continues that the Government considers that the financial management of EU funds could be improved significantly by making progress in three key areas:

  • Member States need to take greater responsibility for the funds that they manage;
  • in line with the Government's calls for greater transparency across all areas of public spending, whether at a national or EU level, all Member States should be required to publish financial management data, as the UK does with its consolidated statement on the use of EU funds in the UK,[55] through which an accurate picture can be provided to increase the level of assurance to EU taxpayers — the Government is using the review of the Financial Regulation[56] as an opportunity to push for greater transparency in EU spending; and
  • it is right that the burden of auditing should fall on the largest and riskiest projects.

12.11 The Minister tells us that, following the debate on the Floor of the House on the Court's 2009 report on 2 February 2011,[57] the Government took a very tough line at the ECOFIN Council meeting on 15 February 2011, withholding its approval from the vote on Discharge of the 2009 Budget, with strong support from Sweden and the Netherlands, and tabling a joint declaration by all three Member States, setting out the steps the Government expects to see before it can consider supporting the Discharge.


12.12 This Report gives useful background to the preparation and conclusions of the European Court of Auditors 2009 annual report and more generally to the audit process. Thus, while content to clear the document, we both commend the Government's robust attitude to the Discharge of the 2009 Budget and draw the Report to the attention of the House.

53   (32166) -: see HC 428-x (2010-11), chapter 3 (8 December 2010) and HC Deb, 2 February 2011, cols. 979-1002. Back

54   (32428) 5129/11: see HC 428-xvi (2010-11), chapter1 (9 February 2011) and Gen Co Deb, European Committee B, 14 February 2011, cols. 3-18. Back

55   The UK's consolidated Statement for the financial year until 31 March 2009 was published on 19 January 2011: see  Back

56   (32428) 5129/11: see HC 428-xvi (2010-11), chapter1 (9 February 2011) and Gen Co Deb, European Committee B, 14 February 2011, cols. 3-18. Back

57   (32166): see HC 428-x (2010-11), chapter 3 (8 December 2010) and HC Deb, 2 February 2011, cols. 979-1002. Back

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Prepared 7 April 2011