Select Committee on European Union Minutes of Evidence

Examination of Witnesses (Questions 510-519)

Ambassador de Marchant et d'Ansembourg and Mr Peter Bartholomeus

17 OCTOBER 2006

  Q510  Chairman: Ambassador, welcome. Is there anything you would like to tell us before we start? Perhaps you would like to introduce your colleagues?

  Ambassador d'Ansembourg: Yes, and thank you for inviting us. I have with me three members of our Ministry of Finance: Mr Bartholomeus, who is sitting to my left; and behind me I have two members of the Ministry of Finance and a colleague from the Embassy, the Head of our Economics Department.

  Q511  Chairman: It would help the Committee if you would tell us about this proposal or scheme that you have, the national declaration of assurance. Could you tell us how it is going to work and perhaps why you did it and so on.

  Ambassador d'Ansembourg: If you do not mind, I will make a short statement and then we are, of course, prepared to answer your questions. I will give a short introduction on the Dutch feasibility study on the roadmap initiative, with which of course you are familiar, and the national statement for EU funds in shared management. The Dutch national declaration will be built on fund specific sub-declarations. In the Dutch system the (financial) management of EU funds is spread out over various ministries concerned: EAGGF, which are the agricultural guarantee funds at the Ministry of Agriculture; ERDF, which is the Regional Development Fund at the Ministry of Economic Affairs; and ESF, the European Social Fund at the Social Affairs Ministry in The Netherlands. Actual structural fund management is decentralised to local government under loose guidance of the Ministry of Economic Affairs. Recently, the decision has been taken to start centralising the management of structural funds. This is an element of the strategic reference document outlining the structure for the new period. The most notable element in this centralisation is the move towards one certifying body for both the agricultural and the structural funds. Within The Netherlands, we are currently working towards centralisation of the audit function. The general idea is that centralisation will allow for an easier introduction of the national declaration as the stream of information (especially that related to financial and audit reporting) will be more transparent. The structure we intend to develop for a national declaration is as follows: the ministries concerned will provide sub-declarations on the funds for which they are responsible. The Ministry of Finance will consolidate these declarations into one national declaration which it will send, on behalf of the government, to the Commission and the national parliament. Our supreme audit institution (SAI) will provide an audit certificate on the national declaration, but this will not be integrated in the reporting chain as envisaged in the original roadmap proposal. The audit certificate will be given for the benefit of our national parliament to whom it will be sent. The Ministry of Finance will send the SAI (the Supreme Audit Institution) statement as an annex of the national statement to the Commission. The national declaration is intended to be both a declaration on the proper functioning of the control systems (henceforth, the system declaration) and a declaration of assurance on the legality of the transactions (henceforth, the legality assurance declaration). It will cover the EAGGF (including the fisheries fund), ERDF, ESF and Life+ and Interreg IIIA. The design of the national statement will be built as much as possible on existing structures and practices or the adaptation thereof in the new regulatory regime for structural funds. The system declaration, as mentioned above, could be built on the new annual control report as foreseen in the new structural fund regulation. With regard to the legality assurance in the field of structural funds, we are still exploring several options: we could build on the annual financial report, but we also foresee a possibility for an increase in sample testing beyond the current 5 per cent controls in order to assess the legality of expenditure in the field of structural funds. Possibly there will be a combination of both where we also take into account our current national practices concerning legality on top of the requirements of the existing EU legislation regime. However, we are aware of the fact that legality assurance already exists for the EAGGF guarantee division (that is the agricultural fund) in the form of an annual declaration of assurance at the operational level. With the new financial regulation for the Common Agricultural Policy, this practice will be extended to the multi-annual rural development funds as well. Because of this, the Dutch national declaration is set to be introduced in two stages: first, in 2007, a declaration over the expenses in 2006 will be given only on the agricultural funds and, secondly, in 2008, structural funds will be added providing a declaration looking back on 2007 on all funds mentioned above. I would be glad to give you a copy of this short introduction.

  Q512  Chairman: That would be helpful to our inquiry. I wonder if your colleague has anything to add.

  Mr Bartholomeus: These are the main features of our project and our proposals. In The Netherlands, we are still discussing the final topics on the structure of our proposal. We hope that within a few weeks the final document will be before our Cabinet and the government, and then a decision will be taken and we will build the system. We hope that we can introduce the first annual national declaration on the agricultural fund within a couple of months. That is the overview for our proposal. I would be pleased to answer your questions.

  Q513  Lord Inglewood: I would like to ask you a bit about the traditional Dutch approach to public sector accounting like this. In particular, under the terms of the European legislation, you cannot get a discharge on the budget if there is one flaw somewhere across all the accounts. On the other hand, in the United Kingdom we divide our public sector accounts into sections and they are given a discharge section by section, so that most of the accounts are cleared and yet there are some bits where there problems are identified. In your system, in Holland, do you approach auditing these accounts from the perspective that everything must be all right to get a clean discharge or is it sectionalised so that bits can and bits cannot?

  Mr Bartholomeus: In our system, for each ministry we have an audit department and each minister is responsible for the financial management of his ministry. Also, with regard to European funds in the policy field in which the fund is working, the minister involved is responsible for the financial management. His audit department will perform the audit on the transactions of the fund. That will be built up by the audits of the department and the minister involved will have an overview and the results of the audit of his own audit department. He will use the results of the audit as an input for his declaration, his sub-declaration. A decision has to be made within a couple of weeks about implementing a central audit authority within the Ministry of Finance. The audit department of our Ministry of Finance in cooperation with the audit departments of the ministries involved will develop the audit policy. It will also have the co-ordinating responsibility for the audits of EU funds. The sub-declarations of the Ministers of Economic Affairs, Social Affairs and Agriculture will be sent to our Minister of Finance. He will consolidate those sub-declarations into the national declaration. He will receive advice from his central audit department. We will have a view from several parts from within central government where EU funds are spent and about the financial management of those funds.

  Q514  Lord Inglewood: I know that Holland has a high reputation for financial regularity. In the unlikely event of one of the sub-accounts not achieving a good standard, what will the national auditor say about it?

  Mr Bartholomeus: Of course we will have to report the results of any irregularities that are found. We will give advice to the ministry involved so that he can improve his financial management system. The minister involved in that will not only say what irregularities have been found but he will also make a proposal about how to improve the financial management. Any proposals for improvement will be reported by the Minister of Finance. In the national declaration, he will also announce a plan to improve the financial management of that particular fund. That will be sent to parliament and to our national audit office, our Court of Auditors, which will audit the national declaration. Our Court of Auditors will give an opinion on the solidity of that proposal to improve the financial management. The national declaration will be discussed in parliament and then it will be sent to the European Commission. Our minister will also send a copy of the opinion of the Court of Auditors. It will be a transparent process. If one of the funds covered will have shown to be subject to structural problems on a transaction level, and/or on the malfunctioning of control systems then a general reservation with regard to that specific fund can be made within the declaration.

  Q515  Chairman: I can see that but I think what Lord Inglewood was hinting at was this. Would the fact that one set of accounts, if you like, was said not to pass, mean that the whole lot was qualified? What would you say about the national assurance? Would that result in a qualified opinion, if you like?

  Mr Bartholomeus: That depends on the materiality of the errors found. We will use the same materiality thresholds of the European Commission and the European Court of Auditors and when errors are higher than the thresholds set down by the European Commission, we will report that and then it will not be an unqualified opinion

  Q516  Lord Inglewood: Do you intend to apply the European standards through your domestic arrangements?

  Mr Bartholomeus: Yes.

  Q517  Lord Inglewood: The way you conduct the national audit I imagine is in line with the best international practice?

  Mr Bartholomeus: Yes, we have standards that are internationally accepted.

  Q518  Chairman: So that I have it absolutely right, if one set of accounts is qualified, then the whole lot is qualified? Is that right?

  Mr Bartholomeus: If a certain amount of irregularity transcends the materiality threshold of the European Commission, then the whole lot is qualified.

  Q519  Lord Blackwell: Can I ask you about the motivation of the Dutch Government's decision to proceed with this unilaterally and the impact that may have on other members of the Council? As we are all aware, you have done this against a background where a number of Member States have expressed reservations about doing this. I am interested in what motivated the Dutch Government to go ahead on its own and, having done that, whether you expect your decision to have an impact on other Member States, and whether, for example, you are proving that some of their objections do not stand or if there were other motivations. In particular, here we are interested in the United Kingdom Government, which has expressed sympathy with this but has not yet gone down this route. Do you have any exchanges with the UK Government on picking up from your lessons?

  Ambassador d'Ansembourg: The short answer is: yes. Mr Bartholomeus will give you the long answer.

  Mr Bartholomeus: Our minister was very concerned about the fact that in the last 11 years there has been no positive declaration of assurance given by the European Court of Auditors. He has been the Minister of Finance for 12 years, and so he has heard all the discussions in ECOFIN and in the Council of Ministers in Brussels. During that time, he was our Minister of Finance and he is a strong believer in improving the financial statements of the European Commission. He was also a strong supporter of the roadmap initiative proposed last November in the ECOFIN Council. Before the ECOFIN Council, we had a lot of contact with your people from the Treasury and the National Audit Office, and so we have had good co-operation with the UK. We learnt that one of the countries in favour of the roadmap initiative was the UK. Denmark was also a strong supporter. In November 2005, the decision was taken in the ECOFIN Council but other countries were not in favour of approving the proposal. We were happy that there was a proposal to allow the introduction of a national declaration on a voluntary basis for each country. Our minister immediately said, "We will have that national declaration and be a pilot, perhaps with other countries, for those European countries". He is a strong believer in the national declaration. He immediately talked with our national parliament and promised to introduce the national declaration within two years. Our hope and goal is to work together with other countries, with Denmark and the UK in particular, which are developing in another way but with the same intent, to introduce a national declaration. We hope that with the countries involved we will succeed in putting forward three pilots so that we can prove that it is possible, politically and at an operational level, to develop a national declaration. We are talking about those things in Brussels, with the European Commission, and also in Luxembourg at the European Court of Auditors. We hope that we will have strong support from the European Commission. We do not want just their support for our pilot in thinking about all the projects but some evidence that when we succeed in implementing the system of national declaration, which will involve extra audit work within our own system to make improvements, and once we have proved the system is working well, the European Commission will give us the advantage of having fewer audits than we have had in the past. We have talked about this with the European Commission and the European Court of Auditors. They have told us that they are supportive of our pilot and interested in the results. In a couple of years, when our pilot is approved and is in place, they have said they will discuss the possibility of lowering what we call the inherent risk. It might be possible, from a sample taken by the European Commission, the audit department of the European Commission or the European Court of Auditors, that we will have a lesser degree of auditing in the sample they have taken for Europe. I hope that will be the case for the other countries that have the pilot for a national declaration.

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