Examination of Witnesses (Questions 510-519)|
Ambassador de Marchant et d'Ansembourg and Mr Peter
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
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
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.