Select Committee on European Union Minutes of Evidence

Examination of Witnesses (Questions 520-533)

Ambassador de Marchant et d'Ansembourg and Mr Peter Bartholomeus

17 OCTOBER 2006

  Q520  Lord Blackwell: Do you think there are other changes that the Commission could make in the way it releases funds and the conditions under which it releases funds to favour those countries that do have a national audit or national certification, as an incentive?

  Mr Bartholomeus: We hope so, but at this moment we only have the main features of our pilot. We have had our first talks with the Commission. At this moment, they are not promising more than I answered to the last question. When we prove it is a success and there are improvements in our system, perhaps in a few years' time, we can gain more advantage from the European Commission or the European Court of Auditors, but at the moment that is not the case.

  Q521  Lord Cobbold: How do you see your admirable system being adapted to countries where there is a regional parliament or a strong regional structure and various ways of distributing European money?

  Mr Bartholomeus: That will be difficult. At this moment in The Netherlands, we are looking for a solution where everything will be centralised. We will have a central certifying authority, a central audit authority, and everything will be at a national level. In a country where there is a lot of regional decentralisation, then you have to have another system. Maybe that system will not be as good at change as our system to meet the requirements of the European Commission regarding the national declaration. I have talked with my colleague in Germany, and they are dealing in a decentralised way with those EU funds. It is hard to have the same solution in Germany as the one we have chosen in The Netherlands. I think each country will have to make its own choices on how to deal with such an initiative.

  Ambassador d'Ansembourg: It is a national responsibility. We cannot determine how the Spaniards or the Germans, who are very decentralised, will want to arrange their own system, I suppose. We are trying to do it nationally. We have a tendency to re-centralise.

  Q522  Lord Cobbold: Has this country thought about it because we have the Scottish and the Welsh Parliaments?

  Ambassador d'Ansembourg: With devolution, you have a problem too.

  Q523  Lord Maclennan of Rogart: I wondered whether the motivation was more to move towards the lightening of the load of audit from the European Union or to make assurance doubly sure. The picture of your own national practices does not suggest that you have great problems in this area in auditing nationally European expenditure. Do you find the European Union's audit intrusions oppressive or in some way unacceptable?

  Mr Bartholomeus: No, that is not the case. There are two main reasons for introducing this project. First, it is the wish of our minister to perform this audit as a first pilot perhaps to get more follow-up by other countries in Europe. We hope that this is a first step towards a positive declaration of assurance. There is another reason, and that is our own financial management of EU funds within The Netherlands. We do not have severe problems but we have problems with our EU funds. A couple of years ago, we had a problem with the European Social Fund. We had a claim from the European Union. We had to pay back a lot of money. At the present time, we are having some discussions on the European Regional Development Fund with the European Commission. Our minister is very motivated to improve our system. In particular with the European Regional Development Fund, we have the use of a decentralised system. In our new centralised system we will have an overview at a national level as to how we perform within that system and to what degree we have problems with irregularities. Our minister has said, especially as we have a new programme period, that we will introduce a centralised system in which we will take the lead for the regions; we will develop the audit approach; we will appoint the auditors to conduct the audits in the regions; and we will have a centralised certifying authority. This is to get a system where financial management at a national level will be more transparent.

  Q524  Lord Maclennan of Rogart: In your answer to an earlier question, you did say that you would anticipate that if this all went well and some years down the track, you would hope you would experience less audit at European level. Would you accept or would you take the view that there would still be a requirement or a capability for the European Union to check that the system was continually operating as well as it appeared to be at that point?

  Mr Bartholomeus: We accept that but we hope that in a couple of years if the European Union wants to check our system, there will be a system of single audit. Of course, the European Union will conduct an investigation on our system and they will look at the consequences of what we have developed. When they see that our system is working well, then we hope that they will allow us to perform our own audit and that they will introduce the single audit principle for our country. At this moment, they have not promised that that will be the case within a couple of years. We heard last week at the European Court of Auditors that some members of the Court are in favour of a single audit but there are other countries that do not believe that a single audit is a good instrument. We will have to wait. There is no guarantee that we will get the single audit.

  Q525  Lord Jones: As the Union expands and moves east and as we look more and more at structural funds and agricultural funds, in the hard-pressed regions, if there are any, possibly if there are any in The Netherlands, does public opinion foresee that in the future these funds in the hands of the rich nations are going further east? Is public opinion aware that there will in time be fewer structural funds and less agricultural subsidy to assist your own? Do you find that emerging in the debate?

  Ambassador d'Ansembourg: I think, generally speaking, yes, that is the case. This is already taking place, of course. This will not come as a surprise. We did not have very much in the way of structural funds in the first place. There is only one region which has this advantage. I am not quite sure how much we receive at the moment, but, no, this will not be a surprise for the Dutch public. It is also true, and the public does play an important role, in the problem of audits because, after all, these are public funds and the people want to know what happens with these funds. That is one of the reasons that motivated our Minister of Finance to be as precise and as accurate in this field as he is.

  Q526  Lord Inglewood: In his helpful comments, Mr Bartholomeus explained quite fairly that the system that you are devising in Holland is based on a centralised system of audit. He commented that of course in countries with a federal structure that would not work properly. Is it not the case that the key components of the Dutch approach are that you should have competent independent audit applying appropriate agreed international standards? Therefore, if you apply those principles to federal countries, you ought to be able to find a way, within the constitutional frameworks that they have, of delivering the kind of financial assurance that I think we are all looking for.

  Mr Bartholomeus: Yes, that is true. In The Netherlands, we have a system of audit which is slightly different from most other countries in Europe. We have our audit department within the ministry. The minister has an overview of that whole department. The audit department already meets international standards, and our national audit office, our Court of Auditors, meets those standards as well. When you have another system at the regional level, there should be a system where there is an independent audit body that also meets international standards. That is true.

  Q527  Lord Jordan: You spoke earlier about the difficulties that devolved systems pose for your scheme, but there is another serious problem in that the scheme requires that the national statement is signed off by the minister of Finance. Across the European Union there are long-established practices, even constitutional objections, to such a move. Do you think in your discussions on this issue that that can be broken down or are you prepared to amend your own proposals to the fact that it may not be a politician but it could even be a senior civil servant that signs off?

  Mr Bartholomeus: We are aware that the solution we have chosen is a solution that only works within our system. There are a lot of countries where the constitution does not permit having a national declaration given by a minister. We do not think it is necessary for a minister to give the national declaration and that it is also a very good system when other bodies, and that could be a civil servant but also the court of auditors, give an opinion that could be the national declaration. In our case, we took the decision for the national declaration to be given by the minister. It is a fact that in our own national system our minister also gives the statement on the account of the ministry. A few years ago, we introduced a new system in which each minister has to give a statement on his own national accounts for his ministry. In that statement he declares that there is sound financial management and when that is not the case, then he has to describe the problems and the improvements he will make. He has to report the amount of irregularities that have been found by his own audit department and he has to give an overview of the efficiency and effectiveness of the policy he is taking. That statement is part of our annual statement which the minister has to send each year to parliament. Our national audit office audits that statement. We do have a tradition now in our country that ministers are used to giving statements. In that way, it is not a big step in our country for the Minister of Finance now to give the declaration himself. I can imagine that in other countries where the case is not as in our country that the minister is not permitted to give the declaration himself. Then there will be another solution. I have learned from the results of the ECOFIN that the Commission is a strong believer in having statements from ministers, but I also learn that many countries cannot fulfil that responsibility.

  Q528  Lord Jordan: It seems to me that providing responsibilities accepted for a statement by the government ultimately is what is required. That is a bit different from having what is called an independent audit where the government is not necessarily taking the ultimate responsibility for it.

  Mr Bartholomeus: Yes. Our minister is giving his national declaration on behalf of the whole cabinet, the Council of Ministers. It is also a decision of the Council of Ministers to approve the national declaration that our minister will send to the parliament and also to the European Commission. As for the way that other countries develop their national declaration, there is one thing in my opinion that is absolutely the same in each country and that is the responsibility of the government for the spending of EU funds.

  Q529  Chairman: The Dutch court of auditors in your scheme will actually have an input, of course, will they not?

  Mr Bartholomeus: Yes. When our minister has sent his national declaration to the national parliament, then the court of auditors will perform an audit on that national declaration. The report of the national audit office will be sent to our national parliament and our minister of Finance will send the national declaration with a copy of the report of the court of auditors to the European Commission. It is not the case that our national court of auditors sends the report immediately to the European Commission.

  Q530  Chairman: Have you done a cost analysis on this scheme?

  Mr Bartholomeus: We have done more or less. We have incurred costs and more will be spent to improve the system. We will centralise the certification authority. In a few years, we will have centralised the audit of the funds. I think that money will be needed to improve the system. At this moment, we do not have a clear view of what those costs will be. Then there is the question about what benefits there will be coming out of this pilot. We hope that we will have the benefit of more sound shared financial management of the European Fund, that we will have fewer irregularities and less chance of receiving a claim from the European Union. We think that in a couple of years when we have a centralised certification authority working well and a centralised audit authority, then that will be more effective and efficient than what is the case now where everything is decentralised and every body is doing its own audits.

  Q531  Lord Blackwell: On the broader question of the problem we are trying to deal with, the irregularities in the EU accounts, you said at the beginning that the Dutch Government had been concerned for a number of years that the court of auditors had not signed off the EU accounts. I wonder how big you feel that problem is and whether you think the risk of misuse of funds and indeed potentially fraud of funds in some parts of the EU is significant and whether you think we actually have a reliable measure or estimate of how big the problems could be.

  Mr Bartholomeus: Our minister had a discussion in the ECOFIN Council over several years about the reason why there is no positive declaration of assurance. We learnt from the people in the European Court of Auditors that they have exceeded the materiality thresholds a great deal, by several per cent. Our minister is concerned that in a couple of years, and it has already gone on for 11 years in the same way, there can be no good feeling about the amount of irregularities all over Europe. We also learnt that the European Court of Auditors has assembled a sample; it is not a mathematical sample but only 500 audits. Maybe they have results from that sample that are not good enough to give a positive audit opinion, but maybe there are more problems than they can see as a result of their audit. Our minister has a strong feeling that the improvement has to be in the system because when you have a good system, then your transactions will be regulated. He is in favour of improving the system, not only in the European Commission in Brussels but also in the European countries. That is why he is in favour of the roadmap initiative. When that was not agreed last November at ECOFIN, he thought that if our country and others were to give a good example, maybe in a couple of years other countries will also be interested in following our example.

  Q532  Lord Blackwell: The implication is that if you do not have confidence in the systems, you cannot have confidence that you have identified the scale of any irregularities that may be going on?

  Mr Bartholomeus: At this time, we think that every country needs the same interest in having sound financial management with regard to EU funds and taking responsibility. In practice, we see that there are differences. We think that, given the example, other countries could improve and maybe they will follow our way of doing this in a couple of years.

  Q533  Lord Inglewood: You have touched on a point which I wanted to raise with you if there was time, which is: does the Dutch Government have a view about the adequacy or otherwise of the Commission's internal systems of financial control and internal audit? We have heard a lot of evidence, with some saying it is quite good and other people saying that no, it is not. Does the Dutch Government have a view about it?

  Mr Bartholomeus: We think that, in the last couple of years, it has improved a lot. There has been an introduction of management statements of Directors General in the European Commission. At this time, there is an internal control division within the European Commission which audits the statements and there is improvement. They have also introduced new systems of financial management within the Commission. For example, the European Commission will be introducing in the next year a new accounting system based on international accounting standards. That is one example. There are not many countries in Europe that have already adopted those accounting standards for their own national accounts. The European Commission is really setting a good example on that point. With the introduction of management statements and the start of an internal audit department with internal control, we see that this has improved a great deal. Perhaps it has to improve more but there have been many improvements.

Chairman: Thank you very much indeed. We are very grateful for your help and advice.

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