10 Reliability of checks on agricultural
expenditure
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| Special Report No. 18/2013 of the European Court of Auditors: The reliability of the results of the Member States' checks of the agricultural expenditure
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| Legal base | —
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| Documents originated | —
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| Deposited in Parliament | 1 April 2014
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| Department | Environment, Food and Rural Affairs
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| Basis of consideration | EM of 6 April 2014
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| Previous Committee Report | None
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| Discussion in Council | No date set
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| Committee's assessment | Politically important
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| Committee's decision | Cleared
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Background
10.1 The European Commission shares responsibility for the implementation
of the Common Agricultural Policy (CAP) with Member States, with
expenditure being administered and paid out by national and regional
paying agencies. Those agencies carry out administrative checks
on aid applications in order to verify their eligibility, and
they also carry out on-the-spot checks on a sample of applicants,
with the errors detected by these means giving rise to reductions
in the amount of aid paid to the applicant. Independent bodies
appointed by the Member States[25]
certify to the Commission the annual accounts of paying agencies
and the quality of the control systems these agencies have put
in place, and Member States annually report the results of these
checks (control statistics) to the Commission.
10.2 The Commission uses this information in relation
to the discharge procedure before the European Parliament and
the Council, with the control statistics being the building blocks
for estimating a residual error rate, which is deemed to represent
the financial impact of irregularities in payments made after
all the checks have been carried out. A consolidation of control
statistics at EU level and the residual error rate are published
in the Annual Activity Report of Directorate General for Agriculture
and Rural Development (DG AGRI).
The current document
10.3 This Special Report by the European Court of
Auditors seeks to establish whether the results of the checks
of agricultural expenditure carried out by Member States and reported
by the Commission are reliable, and more specifically to determine
whether:
· the
administrative and on-the-spot checks carried out by the paying
agencies are effective;
· the
statistical reports containing the results of the paying agencies'
checks are correctly compiled and verified before their submission
to the Commission;
· the
work of the certification bodies provides sufficient assurance
regarding the quality of the on-the-spot checks and the reliability
of the statistical reports;
· the
Commission ensures that the statistical reports are reliable;
and
· the
Commission's calculation of the residual error rate is statistically
valid.
10.4 The audit examined the statistical reports covering
the 2010 results of administrative and on-the-spot checks for
direct aid and rural development schemes under the CAP, which
supported the Annual Activity Report for the 2011 financial year,
and the Court also used the results of its annual Statement of
Assurance audits for 2010, 2011 and 2012 to assess the effectiveness
of the systems implemented by paying agencies to carry out administrative
and on-the-spot checks. In addition, it visited nine paying agencies
in eight Member States, including the Rural Payments Agency in
the UK, during the audit.
10.5 The Court concluded that, overall, the results
of the checks of agricultural expenditure carried out by Member
States and reported to the Commission are not reliable, and that:
· the
systems in place for administrative and on-the-spot checks in
paying agencies are only partially effective in detecting irregular
expenditure;
· most
paying agencies do not fully ensure the accuracy of the control
statistics before they are submitted to the Commission;
· the
work of the certification bodies does not provide sufficient assurance
either of the adequacy of the on-the-spot checks or on the reliability
of the control statistics;
· the
limited review of Member States' statistics by the Commission
cannot ensure their reliability; and
· the
information available to the Commission does not provide it with
a reliable basis on which to estimate a residual error rate.
10.6 In the light of these findings, it recommends
that:
· the
administrative and onthespot checks should be more
rigorously conducted by the paying agencies and the quality of
the Land Parcel Identification System databases improved;
· the
guidelines issued by the Commission for implementing adequate
control systems and compiling statistical reports should be clarified,
and their implementation more strictly monitored;
· the
guidelines issued by the Commission to the certification bodies
should be amended to increase the size of samples of onthespot
checks tested, require reperformance of checks, and verify
more closely the compilation of statistical reports;
· the
Commission should reexamine the current reporting system
to which paying agencies are subjected in order to ensure that
it receives at the most appropriate time complete and relevant
information which it could use in the discharge procedures;
· the
Commission should also increase the effectiveness of its desk
and onthespot verifications of the Member States'
statistical reports; and
· the
Commission should take the necessary measures to arrive at a statistically
valid estimate of irregularities in payments, based on the work
of the paying agencies and the expanded role of the certification
bodies provided that sufficient improvements take place in the
work of those bodies.
The Government's view
10.7 In his Explanatory Memorandum of 6 April 2014,
the Parliamentary Under-Secretary of State for Farming, Food and
Marine Environment (George Eustice) says that the Government takes
the financial management of EU funds extremely seriously and supports
efforts to improve the way in which the EU budget is managed.
He also points out that UK paying agencies have already taken
significant steps to improve compliance with EU regulations, reduce
error rates in payments, and mitigate the risk of financial corrections:
as a result, he says that there has been a significant improvement
in the quality of the data regarding ineligible features in rural
land registers, which is a key part of the Integrated Administration
and Control System (IACS) required by the regulations, and that
further improvements in regulatory compliance will be delivered
as part of work to refresh systems and implement CAP reform (notably
his Department's CAP delivery programme).
10.8 However, the Minister says that the Court has
failed to consider adequately whether the checks specified by
the regulations are value for money, reduce fraud or help to deliver
the intended policy outcomes: also, its report does not take account
of recent changes, particularly the new horizontal Regulation
(1306/2013) on the control, financing and monitoring of the CAP,
which provides for a significant increase in the responsibilities
of the certification bodies by requiring an opinion on the legality
and regularity of expenditure.
10.9 The Minister also suggests that the Court's
approach is driving an unsustainable escalation of error rates,
administrative burdens and financial corrections on Member States,
and that the Commission's likely response to the Court's findings
will add further layers of regulation in future negotiations and
increasing financial corrections. He further notes that the European
Parliament has taken up this theme in a resolution passed on 4
February 2014 on the future of the Court of Auditors, which stated
that the Court should devote more resources to the examination
of whether economy, effectiveness and efficiency have been achieved
in the use of the public funds entrusted to the Commission; went
on to express the expectation that closer cooperation between
the Court and Member States' audit institutions will be established;
and called for the Commission to make proposals to integrate Member
State audit work into the Court's audits of shared management.
10.10 The Minister comments that there is an urgent
need for the Court, in conjunction with the Commission, to examine
the way in which errors are classified and quantified: in particular,
it should promote a risk-based approach to control and audit,
with a focus on fraud and other serious irregularities and on
whether EU policies represent value for money and deliver the
intended outcomes, rather than on subjective judgements as to
whether, for example, marginal land is eligible or not eligible
for subsidies. He adds that the Court should also take a more
positive approach to the 'single audit' model,[26]
which seeks to prevent the duplication of control work, to reduce
the overall cost of control and audit activities at the level
of Member States and the Commission, and to decrease the administrative
burden on those being audited.
10.11 The Minister observes that, despite significant
efforts before and during the negotiations, CAP reform —
which includes elements such as greening and the active farmer
test that will be difficult to control in practice — has
failed to deliver genuine simplification, and he says that the
UK will work with other Member States and the Commission for further
simplification, both in the implementation of the new regulations
and guidelines and in any future changes. Finally, he criticizes
the Court of Auditors for its failure to set out a convincing
vision as to how the EU can obtain a positive audit opinion on
legality and regularity in the future, which he suggests would
include a combination of the following:
· improved
management of EU-funded expenditure by Member States;
· simpler
regulations with less scope for subjective interpretations;
· clearer
guidelines from the Commission on what constitutes a compliant
internal control framework;
· a reformed
approach to audit, with a greater focus on performance, whilst
maintaining an adequate level of compliance audit (of legality
and regularity) and financial audit; just as all of the Comptroller
and Auditor General's opinions explicitly state whether the money
has been applied for the purposes intended by Parliament and whether
the financial transactions conform to the authorities that govern
them; and
· formal
agreement by Council and the European Parliament on the tolerable
risk of error (materiality threshold) for each policy area.
10.12 In this connection, the Minister says that,
whilst the report does not itself have any direct financial implications,
its findings and recommendations are likely to force the Commission
to take steps which will increase the costs and burdens of regulatory
compliance for administrations and beneficiaries.
Conclusion
10.13 The accuracy and reliability of the information
provided by the Member States to the Commission in this area is
clearly of some importance, as is the way in which the Commission
handles that information, and this Report by the Court of Auditors
identifies a number of shortcomings. Consequently, whilst we are
content to clear the document, we therefore think it right to
draw these to the attention of the House, along with the Court's
various recommendations for addressing those shortcomings. In
doing so, we also note that, whilst the Government is anxious
to see an improvement in the financial management of EU funds,
it does have considerable reservations about the value for money
which the Court's approach would provide, and has concluded by
suggesting a number of ways in which that approach might be improved.
25 The National Audit Office in the UK. Back
26
The concept that each level of control and audit builds on the
preceding one. Back
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