14 Financial management
| Committee's assessment
| Politically important |
| Committee's decision | Cleared from scrutiny
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| Document details | (a) Commission Communication on protecting the EU budget (b) Commission Report on discharge matters for the 2012 financial year (Summary)
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| Legal base | —
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| Department | HM Treasury
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| Document numbers | (a) (36226), 13781/14, COM(14) 618
(b) (36366), 13681/14 + ADDs 1-2, COM(14) 607
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Summary and Committee's conclusions
14.1 The Commission Communication, document (a),
is an annual response to a European Parliament request made in
the context of the 2011 "discharge" of the EU Budget
and concerns protection of the budget. The Commission Report,
document (b), is about the follow-up actions taken to improve
management of the EU budget pursuant to the European Parliament
discharge resolutions and the Council Recommendation for 2012.
14.2 The Government is generally welcoming of both
documents, whilst emphasising the need to continue efforts to
improve financial management.
14.3 Whilst clearing these documents, we draw
them to the attention of the House as illustrative of continuing
efforts to limit abuse of the EU's financial resources.
Full details of the documents:
(a) Commission Communication: Protection of the EU budget to
end 2013: (36226), 13781/14, COM(14) 618; (b) Commission Report
on the follow-up to the discharge for the 2012 financial year
(Summary): (36366), 13681/14 + ADDs 1-2, COM(14) 607.
Background
14.4 The Commission receives a "discharge"
of the annual General Budget from the European Parliament, on
the basis of a recommendation by the Council, which follows from
the European Court of Auditors' audit. The Commission is required
to report on its actions in response to recommendations made during
the discharge process.
The documents
14.5 The Commission Communication, document (a),
is an annual response to a European Parliament request made in
the context of the 2011 discharge and concerns protection of the
EU Budget. It sets out in detail the use of corrective and preventive
mechanisms to protect the EU budget from illegal and irregular
expenditure. Preventive measures include interruptions and or
suspension of payments, while corrective actions include financial
corrections and recoveries. Financial corrections involve the
recovery of EU funds that have been incorrectly received or applied
by a Member State. The Commission details the process for imposing
financial corrections and recoveries as well as the outcomes of
these processes, with a particular focus on agriculture and cohesion
policy. It also notes the distinction between financial corrections
that involve the off-setting of the amount against future receipts
and net financial corrections which involve funds returning to
the EU budget, thereby reducing Member States' national contributions.
14.6 In relation to financial corrections in 2013
the Commission says that:
· the total amount of corrections and recoveries
confirmed in 2013 rose by 20%, compared to 2012, while the number
implemented fell to €3.3 billion (£2.6 billion);
· the majority of the corrections and recoveries
confirmed and implemented mostly related to systems weaknesses
or irregularities from previous years;
· financial corrections represented 2.3%
of all the budget payments with recoveries representing 2.2%;
· 2,495 financial corrections were confirmed
in 2013 with 214 confirmed in the UK;
· total recoveries implemented in 2013 stand
at €862 million (£670 million); and
· it will take into consideration all evidence
from Member States before making final assessments on its summary
of the financial corrections in progress at the end of 2013.
14.7 On cumulative financial corrections and recoveries
to the end of 2013 the Commission says that:
· the average amount of corrections and
recoveries confirmed each programming period has varied from 2,719
during 1994-99 to 7,840 during 2000-06 and 2,116 during 2007-13;
· corrections for the European Agricultural
Guarantee Fund since 1999 total €9.15 billion (£7.11
billion);
· material deficiencies identified in Member
States' management and control systems are followed-up until sufficient
evidence is provided confirming that the weaknesses have been
remedied;
· there are plans to remedy deficiencies
in the quality of the Land Parcel Information System and to address
weaknesses in the control systems of certain Member States;
· for the European Regional Development
Fund (ERDF) and the European Structural Fund (ESF), the combined
amount of financial corrections at the end of 2013 was €8.8
billion (£6.8 billion);
· with regard to the ESF, it aims to move
away from correcting errors towards avoiding them;
· in the areas of the ERDF and the Cohesion
Fund, its action, in cooperation with Member States, to identify
and address weaknesses, resulted in an overall improvement for
2007-13 compared to the previous programming period;
· these actions included strengthening national
management and control systems;
· the Commission's simplification efforts,
which included encouraging Member States to remove unnecessarily
complex national eligibility rules, resulted in a reduction in
the probability of occurrences of errors under the ESF programme;
and
· confirmed recoveries for the 2009-13 programming
period stood at 3,530 with 3,353 recoveries implemented.
14.8 Turning to net financial corrections and improvements
for 2014-20 the Commission says that:
· for this programming period, the application
of net financial corrections has been extended beyond agriculture
to include cohesion policy;
· further improvements have been implemented,
including a greater focus on riskier expenditure, shorter conformity
procedure and simplified payments schemes;
· the new legal framework established by
the Common Agricultural Policy Horizontal Regulation is expected
to strengthen the Commission's powers to suspend EU financing
in relevant cases;
· under cohesion policy €570 million
(£443 million) of financial corrections and recoveries were
made in 2013, up from €63 million (£49 million) in 2012
— the factors that contributed to this notable rise include
the closure of the 1994-99 programmes;
· the detail of the new process under the
2014-20 programming period obliges the Commission to impose net
financial corrections for cohesion funds; and
· this will incentivise Member States to
further improve their management and control systems, and conduct
timely, effective and robust controls.
14.9 On preventive measures the Commission says that:
· for agriculture, in addition to the use
of net financial corrections, compulsory administrative structures
have been established within Member States, which are also required
to introduce systems for ex-ante controls and dissuasive
sanctions; and
· in addition to these corrective mechanisms
used for cohesion, it may interrupt or suspend certain payments
to protect the EU budget.
14.10 In regard to independent corrective actions
by Member States the Commission, noting that recovery procedures
under CAP are the responsibility of Member States and subject
to national judicial processes, says that in 2013 Member States
repaid a total of €197 million (£153 million) to the
EU as part of cases identified by national controls and checks.
14.11 Finally, on other resources, the Commission
says that in 2013, its recovery of unused pre-financing amounts
totalled €435 million (£338 million) with total recoveries
relating to own resources amounting to €43 million (£33.4
million).
14.12 The Commission Report, document (b), is on
the follow-up actions taken to improve management of the EU budget
pursuant to the European Parliament discharge resolutions and
the Council Recommendation for 2012. The Report is accompanied
by two Commission Staff Working Documents which detail its responses
to both the European Parliament and Council's recommendations.
Having considered these the Commission agrees to start new actions
on 142 requests, says that for 240 requests the required action
has already been taken or remains ongoing and that it is unable
to action 40 of the requests.
Issues arising from the Annual Activity Reports
of Directors-General
14.13 The European Parliament expressed concern regarding
the number of reservations within the Annual Activity Reports
(AARs) of the Commission's Directors-General. The Commission broadly
welcomed the European Parliament's endorsement of specific reservations,
but considered the request to audit all operational programmes
during the course of the programming period to be in conflict
with both the single audit approach and the European Parliament's
request to enhance cost-efficiency by targeting audits to high
risk programmes.
Member States' definition and application of regulations
and rules
14.14 In the area of shared management, the Commission
concludes that adequate processes existed in relation to some
of the European Parliament's recommendations. However, it confirms
that it has complied with the European Parliament's request for
a clear definition of "serious deficiencies" (which
triggers the procedure for net financial corrections) and the
assessment of key requirements for management and control systems
to be set out in a delegated act. The Commission says that it
also introduced a new suspension mechanism for agriculture, which
can be used as an ex-ante instrument to protect the EU
budget from weaknesses in Member States' control systems.
Stronger control and audit strategies for 2014-20
14.15 The Commission sets out action it has taken
in response to seventeen recommendations from the European Parliament
relating to controls and audits. Of the seventeen recommendations,
six relate specifically to the Directorate-General for agriculture
(particularly shortcomings in the Land Parcel Information System)
and six concern collectively the Directorates-General for regional
and urban policy, for employment, social affairs and inclusion
and for agriculture. The Commission says that in many cases it
assessed that the European Parliament's recommendations fell outside
the Commission's remit, being the responsibility of Member States,
or that existing systems and processes were already being successfully
implemented to address those points. It says that in other cases,
it took action pursuant to the European Parliament's recommendations,
including through the development of new and reinforced audit
strategies in both cohesion and agriculture.
Further improving the Annual Activity Reports
14.16 In this area, the Commission highlights efforts
made to independently audit national managing authorities, intermediate
bodies and those beneficiaries identified as high risk. The Commission
also confirms that AARs already report the examination of Member
States' control statistics and audit reports.
Taking necessary protection measures
14.17 Among other actions to address the European
Parliament's requests in this area, the Commission sets out its
commitment to provide information on interruptions, suspensions,
financial corrections and recoveries as well as data on those
net financial corrections which lead to assigned revenue for the
EU budget and the results of Member States' corrective work.
Other measures
14.18 The Commission confirms that steps have been
taken to address the European Parliament's requests to publish
every stage of public procurement procedures online and that it
is committed to tackling weaknesses identified in particular Member
States.
EU Anti-Fraud Office (OLAF)
14.19 The European Parliament raised a number of
issues relating to the Dalli case (a former Commissioner
who has a case before the Court of Justice) focussing particularly
on information provided to the European Parliament, accountability
by the Commission and OLAF, respect for the principle of innocence,
legality of recordings, cooperation with the judicial authorities
of Member States and respect for fundamental rights. The Commission
considers that it has acted appropriately and in accordance with
existing rules and regulations. Further, it notes that, where
relevant, it has already provided detailed explanations to the
European Parliament. The Commission also addresses the European
Parliament's concerns regarding the financial indicators for opening
an investigation, the follow-up measures taken on cases of suspected
fraud, cases dismissed and referred back to the Commission in
2012-13, surveys among OLAF staff and a request for a non-redacted
version of a document.
The Government's view
14.20 In his Explanatory Memorandum of 15 October
2014 on the Commission Communication, document (a), the Financial
Secretary to the Treasury (Mr David Gauke) says that the Government
supports efforts to protect EU budget funds through improved financial
management, including the use of net financial corrections which
can serve as a deterrent, encouraging Member States to ensure
that they comply with the rules governing the use of EU budget
funds. He comments further that:
· a number of problems have been identified,
however, with the way in which financial corrections are currently
applied and the Government welcomes the Commission's commitment
to address these;
· the Government also supports the efforts
to shorten the conformity procedure during the 2014-20 programming
period and believes that the Commission should abide by the same
deadlines for issuing responses as apply to Member States; and
· it also strongly encourages close collaboration
between the Commission and Member States' paying agencies on issues
arising from the implementation of the regulations, as well as
efforts to simplify the existing complex rules and legislation
governing the use of EU budget funds.
14.21 In his Explanatory Memorandum, also of 15 October
2014, the Minister says that the Government welcomes the Commission
Report, document (b), which highlights efforts to address the
concerns raised by Council in their discharge recommendations.
He comments that:
· at a time when public resources are scarce,
governments across the EU need to have confidence that their money
is being spent as effectively as possible and that monitoring
systems are robust and effective;
· however, at the same time as driving down
the error rates, it is also important to ensure that the costs
of controls incurred by Member States is reduced;
· further, the Commission should calculate
error rates using a statistically valid methodology, drawing on
the work of audit bodies in Member States;
· the Government will continue to work with
other Member States in the Council to encourage the Commission
to satisfy the recommendations put forward by the European Parliament
and the Council, particularly those relating to the simplification
of existing rules and legislation governing the use of EU budget
funds; and
· the Government also welcomes the mandate
given to the Commissioners-designate to make faster progress on
simplification and better regulation.
Previous Committee Reports
None.
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