Examination of Witnesses (Questions 190-199)|
Sir John Bourn, Ms Caroline Mawhood and Mr Frank
6 JUNE 2006
Q190Chairman: Welcome, Sir John. I have had
you in front of me before actually, when I was on the Treasury
Select Committee. It is very good of you to take the time to come
and answer our questions. As you know, we are doing this investigation,
this inquiry into the management and auditing of EU funds. What
is your view of the European Court of Auditors and the fact that
for very many years they have not been able to give what is called
the déclaration d'assurance to the European funds?
Sir John Bourn: Chairman, thank you for your
welcome, but of course, I and my colleagues are delighted to have
the chance of serving your Committee and doing everything we can
to assist your inquiry. You ask me what I think of the European
Court of Auditors and I suppose my first point is to recognise
that the Court comes out of a different tradition from the National
Audit Office; it does come out of the Roman law tradition, a tradition
which sees auditing as essentially about legality and regularity
rather than a tradition which looks at the accounts and asks whether
they give you a true and fair view. Of course, my second point
would be to say that, in many ways, over time the procedures of
the European Court of Auditors have come closer to those of the
United Kingdom, if I can use that as a point of comparison, in
that if you say the essence of what I do in the UK is to look
at whether accounts give a true and fair view, to look at the
legality and regularity, and to look at the statements on internal
control and to do this by the auditing standards of the profession
in the UK. The European Court of Auditors in their statement of
assurance have also looked at the accounts, they have also looked
at regularity and legality and at the annual activity reports
of the Directors General. Having notedand I go on to my
third pointthe points of similarity, there are some very
considerable points of difference, and the first one is that the
Court aims for a statement of assurance, one verdict on the whole
of the expenditure of the Commission, whereas I in the United
Kingdom have 500 accounts representing the expenditure of British
central government. In the last year I qualified 13 of the 500.
Q191 Chairman: If I could just interrupt
you there, if you had a similar system to the European one, you
would have to qualify the overall national accounts?
Sir John Bourn: Indeed.
Q192 Chairman: So in fact, they are
setting themselves quite a high test. That is the point you are
making. Is that right?
Sir John Bourn: Yes, and I think it is a test
which, in a way, will be very difficult actually to meet. By setting
a test which is so high, when you explain or put this out publicly,
people feel how hopeless it all is; year after year they cannot
give their statement of assurance. Will they ever do it? If you
are trying to wrap up all the expenditure in one statement, it
will be very difficult to get there, exactly as you say, Chairman.
It is as if I have to say, because I qualify 13 accounts, I have
to qualify the whole of British government expenditure as not
fit for purpose. There is one big difference. Another difference
is that we do in the UK a much greater amount of value-for-money
audit. At the request of the House of Commons, we do some 60 value-for-money
reports a year. The special reports of the Court are much fewer
in number. In 2005, for example, there were only five of them.
Thirdly, an important point of difference is, how do you evaluate
the performance of an external auditor? The main way of evaluating
the NAO's performance that the House of Commons looks at is in
terms of the financial savings derived from our work. The target
is that each year the financial savings from our work should be
eight times the cost of running the NAO, not just us saying so.
We make recommendations, the PAC endorse them, the Government
accept them, they are costed out and then examined by my external
auditor. That is again a big difference in how you evaluate the
performance. Another difference, of emphasis perhaps rather than
principle, is that in our work we do place a particular emphasis
on systems for the management of money and the risks in those
systems rather than examining a sample of transactions. As I say,
this is a difference of degree rather than principle, because
we do examine transactions. The Court does examine some systems,
but the balance is that we put more of the emphasis on examining
the systems of financial management and control, the areas of
risk, as against taking some transactions. The Court perhaps is
a bit the other way round. We do rely on other external auditors
for our work where that is appropriate. For example, in the work
that we do in the audit of the summarised accounts of the National
Health Service we rely on the work done by the Audit Commission,
who are the auditors of the trusts. We do not repeat their work;
we rely on it. There is not very much of that in the work of the
European Court of Auditors, although I know it is their intention
to do more. A final point which I think is important is that all
our financial audit is done by professionally qualified people,
people employed by the NAO who have a professional qualification
to be an auditor. The Court does have some people who are professionally
qualified, but the whole cadre is not completely made up of qualified
people. Chairman, those are a number of points where we have similarities
with the Court, a number of points where we have differences from
the Court. Perhaps if I were just to sum up my view of what the
future might be, how I think it would be advantageous for the
Commission and for the European Union to be able to proceed, it
would be a system under which each of the member countries had
a European Union account which set out the money they had received
from Brussels and what they had spent it on. This account would
be prepared according to International Accounting Standards, audited
by the national audit office of the country concerned according
to International Auditing Standards. So you would have 25 accounts,
one for each of the countries, audited by the same methodology.
The European Court of Auditors would by the same methodology audit
the Commission's expenditure directly, and then it would be possible
for the Commission to reach a view on the generality or perhaps
for the Commission to produce a report which contained the reports
of the 25 countries and their own reports. Some of those might
be qualified, but in that way, you would have a system throughout
Europe where accounts were prepared on the same standards, audited
on the same standards, the different countries would have to be
more explicit about what they did with the money that they received
and the Commission would not necessarily have to try and give
a verdict on the whole lot.
Q193 Lord Cobbold: Does some of that
not happen now? How does the money flow through the Member States'
accounts at this present time?
Sir John Bourn: It does, but it is not always
easy, and the European Court and the Commission itself often deplore
the fact that it is not really possible to follow how the money,
once having been despatched from Brussels, had got to the olive
tree farmer in Greece. I am not saying that to attack a particular
country but, with the cascading of money down in many of the countries,
it is not clear how it gets from one level to another. So it does
not happen like that in all the 25 countries.
Q194 Lord Cobbold: It must be paid
into an account of some sort.
Ms Mawhood: If I could help here perhaps with
an example in the United Kingdom, we receive about £4.7 billion.
About £2.8 billion goes through the Rural Payments Agency,
which is a substantive amount of that account, but the other amounts
go through the Department of Work and Pensions' accounts or what
used to be the Office of the Deputy Prime Minister and are very
small in comparison to the total expenditure going through those
accounts. The EU expenditure is around one per cent of the DWP
accounts, so they do not all get brought together in one member
state, UK account for European moneys. I think that is what we
are trying to say, that in the future, it would be better if all
the EU moneys were accounted for in the UK European account, the
French European account. That is what we are suggesting here.
Q195 Chairman: Have you put this,
if I can call it, Sir John Bourn Plan to anybody? How does it
square with the Road Map of the Commission and indeed with the
European Parliament's ideas on this?
Sir John Bourn: It does square with it quite
well, Chairman. I will ask Caroline to fill in on that.
Ms Mawhood: Essentially, it is a development
of the idea that was proposed through the UK presidency and the
Commission's Road Map. There was a proposal from the European
Parliament, discussed during the UK presidency, that there should
be a declaration by the finance minister in each Member State
about the controls in that Member State over EU funds. And if
you like, this is a development of that, saying that what you
should have is an account of EU funds whichand I do not
know the technicality of how it would work in practicefor
example, in this country might be signed off by one of the lead
departments as far as European matters are concerned, or indeed
perhaps I suppose the Ministry of Finance. It is a development
of that idea which, as you know, did not find favour with Member
States in terms of the declaration being signed by a politician.
Q196 Lord Jones: Do you find that British
ministers are genuinely interested and concerned about the inability
to have that declaration over the 11 years, and do you find Continental
ministers determined to improve things? Are they genuinely concerned
that other people's money is being spent to best effect?
Sir John Bourn: You ask me to reply on what
I think about ministers. I will respond to your point. I think
British ministers want to see it done better, and they have been
prepared to expend a certain amount of capital to press this.
Under the British presidency a lot was done because that provided
the impetus to get to the Commission action plan which was published
in January this year. At the same time as ministers are keen on
it, in the press of business I think it would be not unfair to
say that sometimes an initiative for better financial control
is traded off against the beetroot subsidyI put it in rather
graphic terms. That is my view of British ministers: essentially
they want to see it done better. It is very hard to talk about
ministers in other countries, but certainly my impression, for
which you ask, is that this is not seen as such an enormous problem.
The money may not have been spent exactly as it was thought that
it might have been, but it has been spent, there are some people
who have benefited from the spending, most of them are Europeans,
and that is perhaps as much as you might be able to get. Yes,
we must look at this and move it on but there is not the same
interest in the systems and in accountancy and audit matters.
I have certainly not seen it.
Q197 Lord Watson of Richmond: From
what I have heard from you, I would be a strong supporter of the
Sir John Bourn scheme. I wish you every good fortune with it.
But I would be particularly anxious to see something along those
lines introduced before the next stage of enlargement of the European
Union, and I wonder whether that would also be your basic feeling,
that if there were clear EU accounts established for Romania and
Bulgaria, for example, for membership, that would be reassuring
to everybody and would certainly clarify the picture. Would you
Sir John Bourn: I certainly do agree, but I
think if Romania and Bulgaria come in in 2007, reform will not
have reached that. Perhaps I could make the point that, if you
and the members of the Committee are interested in what you have
been kind enough to call our scheme, we could set it out in a
paper and submit it to you.
Q198 Chairman: I think that would
be very, very helpful, because we are looking at possible reform
plans and solutions to the issue and so it would be very helpful
to have yours.
Sir John Bourn: I should be glad to prepare
and submit it to you.
Q199 Lord Inglewood: If I may make
four small but discrete questions, the first is, you tell us that
you have 500-odd accounts that you audit, of which 13, ie about
2.5 per cent, would fail the DAS test. In the most simple way,
how do you see the performance of this country vis-a"-vis
the performance of the European accounts in general? The second
question is, we have talked to Commissioner Kallas, and he expressed
the view that a number of supreme audit institutions find the
idea of producing reports for which they are answerable to somebody
other than their own national parliament as something they are
very unhappy about. How do you feel about that proposition, as
if you were doing something not for the UK Parliament essentially
but for, shall we say, the European Commission or the European
Court of Auditors?
Sir John Bourn: On your first point, Lord Inglewood,
I do think that the performance of this country so far as public
sector accountancy and audit is concerned is of a higher quality
than most of the other countries. Scandinavia and the Netherlands
have systems which are broadly on the same lines as our own but,
as I say, I think that others are coming at it from another tradition.
I am not one to criticise that tradition but in terms of the performance
you get in the management of public money, you get a less good
performance. In terms of reporting to another jurisdiction, the
way in which I would see that is that if there were to be a European
Union account, the government would produce it, I would audit
it, my report would be available to the British Parliament; if
the Committee of Public Accounts wished to discuss it, they would
be able to do that. I would not see that I had lost my sovereignty
by doing that any more than the Audit Commission lose their sovereignty
when I use their work in my own. So I would not feel personally
threatened by that, though I do know that some of my colleagues
feel that in some way it is the thin end of the wedge and gradually
they will be sucked into the Court and just become subsidiary
organisations. But I do not think that would necessarily happen.
I certainly do not see it as a danger for us.