12 Financial management
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7243/11
+ ADD 1
COM(11) 104
| Commission Report : Member States' replies to the Court of Auditors 2009 Annual Report:
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| Legal base | —
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| Document originated | 28 February 2011
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| Deposited in Parliament | 4 March 2011
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| Department | HM Treasury
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| Basis of consideration | EM of 21 March 2011
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| Previous Committee Report | None
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| To be discussed in Council | No discussion planned
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| Committee's assessment | Politically important
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| Committee's decision | Cleared
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Background
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.
Conclusion
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 http://www.hm-treasury.gov.uk/statement_eufunds.htm.
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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