INTERNAL AUDITS: ANNUAL REPORT TO THE
DISCHARGE AUTHORITY (10480/06)
Letter from Ed Balls MP, Economic Secretary,
HM Treasury to the Chairman
I am pleased to enclose a copy of the UK's response
to the European Court of Auditors' (ECA) Report on the 2005 EC
Budget, including responses to specific UK references therein.
The Commission is required to send a summary of Member States'
responses to the ECA, the Council and the European Parliament.
These responses may be analysed in the Commission's follow-up
report on the financial year 2005.
As Member States' responses are not published
in full, your committee may find it opportune to have the UK response
in full at this stage. The response includes the contributions
of the UK departments responsible for the administration and/or
policy of the different sectors of the EC budget. Member States'
responses are a useful tool for improving the financial management
of the Community appropriations, which could also reduce expenditure.
20 December 2006
Annex A
REPLY OF THE UNITED KINGDOM
Table 1: Please enter your comments to
the following observations made by the Court in the 2005 Annual
report
(Reference is made to the points in the
report where the observations are made)
| Point | Comment
|
| Chapter 1 | |
| 1.11. Experience in public administrations undertaking similar reforms9 shows that projects of a scale and complexity similar to the modernisation of the Communities' accounts inevitably face a variety of problems which complicate and delay their complete implementation. Against this background, important progress has been achieved:
| This is just a reference showing the UK as one of an example of public administrations which have reformed their accounting methods. No comment necessary.
|
| — on 1 January 2005, the Commission moved the general accounting of the EU from cash-based to accruals-based accounts. New accounting rules10 and methods, a new harmonised chart of accounts and new consolidation tools were introduced in all Community institutions and agencies;
| |
| — stakeholders were provided with individual and consolidated accounts which comprise the new obligatory elements and contain more detailed information about the resources controlled by the different entities, the costs of their operations and the cash flow operations.
| |
| 9 For instance at the United Nations Headquarters and the Organisation for Economic Cooperation and Development or in Australia, Denmark, France, Spain, Sweden, the United Kingdom and the United States.
| |
| 10 The new set of 15 accounting rules adopted by the Commission's Accounting Officer are based on the International Public Sector Accounting Standards (IPSAS) and for accounting transactions that are not yet covered by the IPSAS, on the relevant International Accounting Standards (IAS) / International Financial Reporting Standards (IFRS).
| |
| Chapter 2 | |
| Table 2.1. | See comments on specific chapter references.
|
| Chapter 3 |
|
| — | |
| Chapter 4 |
|
| 4.4. The Court's audit of the accounts cannot cover undeclared imports and imports that have escaped customs surveillance. However, its audit work included an evaluation of supervisory and control systems, both at the Commission and in Member States, to assess whether they gave reasonable assurance of completeness. It consisted of a review of the organisation of customs supervision and of the national systems for accounting for traditional own resources in eight Member States3 (see paragraph 4.22); an examination of the effectiveness of the mutual assistance arrangements (paragraphs 4.10-4.12); an examination of the Commission's accounts for traditional own resources; and an analysis of the flow of duties in order to gain reasonable assurance that the amounts recorded were complete and correct.
| The UK authorities have responded to PF 1894 dated 10 February 2006. See letter dated 7 April 2006 from the Deputy Director Finance, HM Revenue and Customs, to the European Court of Auditors.
|
| 3 Belgium, the Czech Republic, Germany, Ireland, Luxembourg, Malta, the Netherlands, and the United Kingdom. In addition, the traditional own resources accounting systems were reviewed in Italy, Poland and Sweden.
| |
| 4.7. As in previous years the Court's audit and the Commission's inspections (see paragraph 4.9) found systematic problems with the B accounts in a number of Member States4. Some errors are related to the conditions for entry in the accounts. In Member States whose B accounts represent 34 % of the balance, customs debts that are partly secured are nevertheless entered in full in the B accounts, leading to delay in making the secured part available to the Commission. Other errors arise because Member States have not adapted their accounting systems so as to record the appeal or recovery accurately, or because there is insufficient internal control over the compilation of reports. 22,7 million euro of potential duties remain under discussion between the Commission and Germany as a result of such a problem.
| The UK authorities do not fully agree with the Court. Present legislation permits debts that are not secured or contested to be entered in the B Accounts and does not differentiate between whole or partial debts. The UK authorities sought clarification by intervention on several points in ECJ case C-275/04. The Court of Justice gave its decision on 5 October 2006 but it does not address the points raised by the UK. The Commission will give further information about ECJ cases including C-275/04 at ACOR on 7 December 2006.
|
| 4 Belgium, the Czech Republic, Germany, Ireland, Italy, Greece, Spain, Finland and the United Kingdom.
| |
| 4.22. The systems for customs supervision and for accounting for traditional own resources were generally found to be functioning correctly. However, an examination of Community transit found that many Member States18 did not have effective systems for starting enquiries on time when there was doubt about the arrival of consignments, and there were also considerable delays in later stages of the enquiry and recovery procedures. As a result duties were frequently collected late in such cases. In several Member States19 customs control of goods in temporary storage20 was not sufficient to ensure that the time-limits and other rules in the Community Customs Code were observed. In one Member State21 the intervals between customs audits of economic operators could routinely exceed three years, thus putting traditional own resources at risk because of time-barring.
| The UK authorities agree with the Commission that NCTS should produce improvements concerning the timely discharge of transit movements. We are confident that the Commission's inspection of UK systems during November 2006 will produce satisfactory results.
The UK authorities place reliance on the trader to ensure that goods are assigned to a customs approved treatment within the prescribed time limits for temporary storage. The UK has also taken steps to tighten up procedures for goods held in temporary storage including reminding the trade of the need to notify HMRC if time limits are likely to be exceeded.
We have now initiated a second national CFSP project to carry out an assurance event on all traders not addressed during the first project. This will assist the UK in identifying the levels of non-compliance and determine the level of future assurance activity of CFSP traders.
The UK carries out post clearance audits as part of a risk management framework designed to assure that the correct amount of revenue is accounted for at the correct time. Within this framework, we recognise that certain regimes are high-risk and warrant a higher degree of intervention and assurance. However, we do not accept that this will always warrant a full systems audit. In an attempt to use our resources efficiently and target our resources to assuring the highest risks, we use different methods of assurance and intervention according to the level of risk. These methods include desk audits using our computer interrogation tool MSS, educational or authorisation visits targeted audit checks of specific transactions or risks, physical examination of specific goods or consignments by Mobile Assurance Teams and full systems audit. It is the view of the UK that these different approaches, taken together as a cohesive whole, do provide an effective and robust strategy for assuring the revenue risks.
|
| 18 Belgium, Germany, Spain, France, Italy, Latvia, Hungary, Poland, Slovenia and Sweden.
| |
| 19 The Czech Republic, Germany, Malta and the United Kingdom.
| |
| 20 Goods that have arrived and been included on a summary customs declaration, but which are awaiting the formalities necessary for them to be assigned a definite customs-approved treatment or use (such as release for free circulation).
| |
| 21 The United Kingdom. Under the Community Customs Code additional customs duty cannot normally be charged more than three years after the original customs debt was incurred.
| |
| Table 4.1. | No comment necessary.
|
| Table 4.2. | No comment necessary.
|
| Table 4.3. | No comment necessary.
|
| Chapter 5 |
|
| 5.22. For the sheep and goat premiums the number of overclaimed animals decreased from 8,2% in 2003 to 6,3%. Italy and Slovenia report significantly higher levels of error for sheep and goat premiums (10% and 24,1% respectively) than the other Member States (1,2%). The Court found problems in Greece, Spain, France, Netherlands and the United Kingdom. The flock registers are poorly maintained. The registers cannot be relied upon to confirm that the retention period requirements have been met or to reconcile the claim with the number of sheep found on inspection.
| The UK have encouraged, and will continue to encourage, claimants and keepers to maintain up to date and adequate records. The standard has improved over the years. However, where inspections uncover records which are non-compliant, the keeper/producer is informed and penalty or sanction action initiated as appropriate.
|
5.35. The Court's audit of physical and/or substitution checks in 11 Member States from 2004 to 2006 concluded that:
a) the fundamental requirement that exporters should not have tacit prior warning of such checks at the point of loading had not been systematically complied with (Belgium, Denmark, Germany, France, Italy, Netherlands, United Kingdom);
b) there were significant weaknesses in the verification of ingredients used in the manufacture of "Non-Annex I" goods such as biscuits, confectionery, whisky, etc. on which refunds are paid (Belgium, Germany, France1, Italy25, United Kingdom25);
c) excessive numbers of physical checks had been carried out on consignments for which the refund claim was less than 200 euro26.
According to the rules, these transactions should be excluded unless they are to prevent fraud and abuse;
d) substitution checks are not carried out at the point of exit from the EU on significant numbers of consignments which have been customs-sealed despite not having been physically checked at the point of loading27. In particular, Denmark28 and the Netherlands allowed authorised exporters to affix customs seals themselves;
e) as the physical presence of customs officials at the point of taking goods under customs control at the customs office of exit from the EU has been replaced by computerised inventory systems in the United Kingdom and certain French ports, the necessary checks that customs seals have not been broken or removed are no longer carried out.
| 5.35 a) The Court's auditors had initially considered that reports produced from the United Kingdom's CHIEF system gave exporters prior notification of physical checks. Our understanding is that following a subsequent visit to the UK in September 2006 the auditors were satisfied that this is not the case.
5.35 b) The United Kingdom understands that this relates to the procedures applied when manufacturers fail to retain adequate records to support the manufacture of goods on which refund is subsequently paid. The United Kingdom is currently considering the concerns raised by the Court.
5.3.5 c) Apart from occasional checks to prevent fraud and abuses, the United Kingdom now excludes low value refund consignments from its programme of physical checks."
5.35 e) The use of computerised inventory systems in the United Kingdom has not replaced the physical presence of customs officers but has allowed them to be deployed more efficiently. The United Kingdom is, however, aware of the Court's concerns and is currently considering the necessary steps required to address them.
|
| 25 A posteriori verification of recipes under Commission Regulation (EC) No 1520/2000 (OJ L 177,15.7.2000, p. 1).
| |
| 26 Analysis of data reported to the Commission under Commission Regulation (EC) No 2390/1999 (OJ L 295, 16.11.1999, p. 1) shows that all EUR-15 Member States (with the exception of Greece and Spain, which did not provide the data, and Luxembourg, which had an insignificant number of transactions) had to varying extents carried out checks on such consignments.
| |
| 27 Affixing customs seals to consignments which have not been subject to a physical check does not contravene current legislation.
| |
| 28 Denmark abandoned this procedure from 1 February 2006.
| |
| 5.73. The Court examined the implementation of the Slaughter Premium Scheme in the context of the follow-up of the Court's Special Report No 6/2004. The slaughter premium scheme is one of the premium schemes relying on the bovine identification system47. The premium is paid for the slaughter or export from the EU of adult cattle and calves.
| The UK welcomes the Court's comments which recognise that the UK and Ireland have set up procedures to exchange information automatically between their relevant databases.
|
| 47 The Court examined its implementation by the Commission and in selected Member States (Germany (North Rhine-Westphalia), Spain (Aragon), France, Ireland, Italy, the Netherlands and the United Kingdom (England)).
| |
| 5.74. The design of the scheme facilitates adequate control over payments in respect of animals which are slaughtered in the Member State of payment. However checks relating to the minority of animals (1,2 % on average in the regions examined) which are slaughtered in one Member State and for which a premium is paid in another are not as rigorous. The transfer of information between Member States relating to such cases is incomplete and does not ensure that all eligibility criteria for the premium are verified before payment. Germany and the Netherlands paid the premium in some cases where confirmation of slaughter from other Member States had not been received before payment. For the Member States visited, only Ireland and the United Kingdom (for animals slaughtered in Northern Ireland) had arranged to exchange information automatically between the relevant databases.
| See comment on paragraph 5.73. |
| Table 5.1. | No comment necessary.
|
| Table 5.2. | No comment necessary.
|
| Table 5.3. | No comment necessary.
|
| Figure 5.3. | No comment necessary.
|
| Figure 5.4. | No comment necessary.
|
| Chapter 6 |
|
6.15. The Court found certain types of error appearing systematically in the projects for certain programmes. Examples are:
— ERDF Objective 1 United Kingdom (South Yorkshire): declaration of EU grant exceeding the co-financing rate without proper justification;
— ESF EQUAL Community Initiative Spain: inadequate supporting evidence for the expenditure declared because the training organisations in receipt of funding failed to clearly identify the ESF activity in their accounting systems;
— FIFG France: the verification and checking activities carried out by the Direction Départementale des Affaires Maritimes prior to the payment of an invoice were not based on adequate supporting documentation.
| The South Yorkshire Objective 1 programme was visited during September and October 2005 by the Court of Auditors who discovered a number of apparent errors and system weaknesses. Many areas/recommendations of the report have since been addressed, withdrawn or further clarification sought. For example, further improvements have been made to the management and control system by the preparation of guidance notes (which all GOs are now administering) on:
(a) Completion of Article 9 Certificates (declaration of expenditure to the EC)—April 2006,
(b) Overheads; calculations and apportionments—October 2005 and
(c) Article 4 Monitoring Assurance Framework—November 2005
Although we support strict financial control, it is disappointing that South Yorkshire should receive such adverse comments on the management of ERDF. it should be recognised that most errors are usually small amounts, paid as ineligible expenditure (rather than fraud against the EC budget), most of which are later corrected.
|
| Table 6.1. | See comments on paragraph 6.15 and in Table 2.2 below.
|
| Chapter 7-9 |
|
| — | |
| Chapter 10 |
|
| Table 10.4. | No comment necessary.
|
| Chapter 11, EDF |
|
| — | |
Table 2.1: Details on findings made by the Court in
your country
|
Finding
no. | The Court's reference in the letter mentioned above
| Category | The Court's description of the finding (this item is presented in the language used by the Court in its internal register of findings
| Transaction
value (EUR)
| Size of irregularity (as per
cent of transaction value)
|
|
| The European Court of Auditors stated the findings below in a letter sent to your National Supreme Audit Institution on 10.2.2006.
|
| The European Court of Auditors used as its reference: PF-1894
|
| UK01 | 05.R.RO.TOR.0017
| | 770-077532W
| N/A | N/A
|
| UK02 | 05.SYS.R0.TOR.0058
| | Accounting systems
| -518.20 | 100.00
|
| UK03 | 05.SYS.R0.TOR.0078
| | Aggregation and production of the B statements
| N/A | N/A
|
| UK04 | 05.SYS.R0.TOR.0118
| | Panalpina case
| N/A | N/A
|
| UK05 | 05.SYS.R0.TOR.0118
| Own resources | CITOps Project evaluation.
| N/A | N/A
|
| UK06 | 05.SYS.R0.TOR.0118
| | Monitoring of the submitting of supplementary declarations
| N/A | N/A
|
| UK07 | 05.SYS.R0.TOR.0118
| | Monitoring of the sufficiency of the security amount
| N/A | N/A
|
| UK08 | 05.SYS.R0.TOR.0118
| | Control frequency
| N/A | N/A
|
| UK09 | 05.SYS.R0.TOR.0118
| | Temporary storage
| N/A | N/A
|
| The European Court of Auditors stated the findings below in a letter sent to your National Supreme Audit Institution on 22.2.2006.
|
| The European Court of Auditors used as its reference: PF-1941
|
| UK10 | 05.P.R2.RCP.2108-01
| | Formal error—Publicity
| N/A | N/A
|
| UK11 | 05.P.R2.RCP.2108-01
| | Substantive error—overhead and depreciation
| 185 787.62 | 9.08
|
| UK12 | 05.P.R2.RCP.2108-02
| | Substantive error
| 2 069 795.30 | 49.39
|
| UK13 | 05.P.R2.RCP.2108-02
| | Formal error—Audit trail
| N/A | N/A
|
| UK14 | 05.P.R2.RCP.2108-04
| | Substantive error
| 1 329 034.82 | 26.06
|
| UK15 | 05.P.R2.RCP.2108-05
| | Non-opinion
| 252 338.85 | N/A
|
| UK16 | 05.P.R2.RCP.2108-05
| | Substantive error
| 51 733.40 | 34.40
|
| UK17 | 05.P.R2.RCP.2108-06
| | Substantive error
| 2 541 253.29 | 100.00
|
| UK18 | 05.P.R2.RCP.2108-07
| | Substantive error
| 7 883 159.89 | 91.86
|
| UK19 | 05.P.R2.RCP.2108-08
| Structural actions | Formal error—timesheets
| N/A | N/A
|
| UK20 | 05.P.R2.RCP.2108-08
| | Formal error—tender
| N/A | N/A
|
| UK21 | 05.P.R2.RCP.2108-08
| | Substantive error
| 19 575 304.61 | 43.45
|
| UK22 | 05.P.R2.RCP.2108-09
| | Formal error
| N/A | N/A
|
| UK23 | 05.P.R2.RCP.2108-09
| | Substantive error
| 1 831 502.68 | 0.62
|
| UK24 | 05.P.R2.RCP.2108-10
| | Substantive error
| 1 287 216.78 | 39.67
|
| UK25 | 05.P.R2.RCP.2108-10
| | Non opinion
| 1 287 216.78 | 25.07
|
| UK26 | 05.SYS.R2.RCP.2108
| | System |
N/A | N/A
|
| The European Court of Auditors stated the findings below in a letter sent to your National Supreme Audit Institution on 29.3.2006.
|
| The European Court of Auditors used as its reference: PF-2037
|
| UK27 | 05.P.R2.SEP.2104-02
| | 1. In the absence of an open and competitive tender, no justification of real cost.- 2. The project implemented in practice did not correspond with the aims and target groups stated in the proposal and in the contract.
| 201 077.61 | 100.00
|
| UK28 | 05.P.R2.SEP.2104-03
| | No audit trail, no supporting documents
| 123 414.93 | 100.00
|
| UK29 | 05.P.R2.SEP.2104-04
| | No audit trail, no supporting documents
| 548 807.46 | 100.00
|
| UK30 | 05.P.R2.SEP.2104-05
| | In the absence of an open and competitive tender, no justification of real cost
| 192 034.33 | 100.00
|
| UK31 | 05.P.R2.SEP.2104-06
| | No audit trail, no supporting documents
| 856 932.84 | 100.00
|
| UK32 | 05.P.R2.SEP.2104-07
| | In the absence of an open and competitive tender, no audit trail and no supporting documents.
| 1 223 880.60 | 100.00
|
| UK33 | 05.P.R2.SEP.2104-08
| | In the absence of an open and competitive tender, no evidence provided for the declared expenditure
| 111 434.33 | 100.00
|
| UK34 | 05.P.R2.SEP.2104-09
| | Absence of proof that the flat rate used by LSC is obviously lower than the real cost
| 0.00 | 100.00
|
| UK35 | 05.P.R2.SEP.2104-10
| Structural actions | Absence of proof that the flat rate used by the LSC is obviously lower than the real cost
| 0.00 | 100.00
|
| UK36 | 05.SYS.R2.SEP.2104
| | No Article 4 checks on the level of the final recipient by the Managing Authority
| N/A | N/A
|
| UK37 | 05.SYS.R2.SEP.2104
| | Identification of projects declared as "match funding" (co-financing) only at the moment of the preparation of the payment claim, hence no management and control under ESF rules.
| N/A | N/A
|
| UK38 | 05.SYS.R2.SEP.2104
| | In the absence of an open and competitive tender for the project selection, justification of real underlying expenditure should have been requested.
| N/A | N/A
|
| UK39 | 05.SYS.R2.SEP.2104
| | Reimbursement of project costs on the basis of flat rates
| N/A | N/A
|
| UK40 | 05.SYS.R2.SEP.2104
| | The conditions of Article 9 of Regulation 438/01 were not fulfilled when the Paying Authority certified the statement of expenditure
| N/A | N/A
|
| UK41 | 05.SYS.R2.SEP.2104
| | No identification of the declared "match funding" (co-financing) by Jobcentre Plus (JCP) London
| N/A | N/A
|
| The European Court of Auditors stated the findings below in a letter sent to your National Supreme Audit Institution on 28.4.2006.
|
| The European Court of Auditors used as its reference: PF-2049
|
| UK42 | 05.P.R1.F1A.1084
| | Physically the animals on the spot—Missing documentary evidence
| 10 723.55 | 5.30
|
| UK43 | 05.P.R1.F1A.1087
| Agricultural policy | 1,24% Overdeclaration of Arable Area
| 6 013.76 | 1.24
|
| UK44 | 05.P.R1.F1A.1091
| | Measurement—Overdeclaration
| 9 198.18 | 0.73
|
| UK45 | 05.P.R1.F1A.1152
| | Error in the completeness of the risk analyse data base
| N/A | N/A
|
| The European Court of Auditors stated the findings below in a letter sent to your National Supreme Audit Institution on 6.4.2006.
|
| The European Court of Auditors used as its reference: PF-2077
|
| UK46 | N/A |
Agricultural policy | Regulation 4045/89 review
| N/A | N/A
|
|
Table 2.2: Do you agree with the Court's findings?
(Please mark with an X if you agree fully, agree partially
or do not agree)
Finding
no | Agree fully
| Agree partially | Do NOT agree
| If you agree fully/partially: What is in your opinion the reason for the finding occurring?
If you do not agree: Why do you not agree with the Court
| Have you taken or will you be taking action to follow up the finding (for instance in order to prevent it from recurring)?
If yes, then please describe action and expected outcome
|
| UK01 | X |
|
| 24 Wrong classification | New surveillance licence not required
|
| UK02 | X |
|
| 3 Failure to follow departmental guidance |
Introduce more management checks |
| UK03 |
| X |
| 4-7 Impractical to check every transaction in the B Account
| Introduce more assurance checks |
| UK04 |
| X |
| 13-14 Poor state of trader's records | Authorisation revoked
|
| UK05 | X |
|
| 8-12 CFSP project evaluation | Project findings will be provided to the Court
|
| UK06 |
| X |
| 18-19 Risk that we do not receive supplementary declarations in respect of all simplified declarations
| Best and realistically addressed during assurance activity, in particular the national projects. Some new monitoring procedures now carried out by team in Leeds.
|
| UK07 | X |
|
| 20-22 Failure to follow departmental guidance
| Further improvements to monitoring arrangements.
|
| UK08 | X |
|
| 8-12 Interval between assurance visits may exceed three years
| 2nd national project will assist determining future levels of assurance activity
|
| UK09 | X |
|
| 15-17 A risk that some LCP traders may not assign goods to a customs approved treatment within prescribed time limits
| Letter sent to all Local Clearance traders tightening up procedures. Have introduced a rolling programme to ensure LCP traders assign consignments to a customs procedure within the prescribed time limits.
|
| UK10 | X |
|
| Accept that the old premises did not acknowledge support prominently.
| New premises did show acknowledge support and obtained an undertaking from the project that appropriate signage will be procured to remedy the situation on all premises.
|
| UK11 | Xa |
|
| Differing interpretation of overheads. |
The approach to overheads was agreed with the Directorate and has since been tightened up as a result of clearer national guidance.
|
| |
| | Xb
| Further clarification required on depreciation.
| Information on the methodology used to calculate depreciation has been checked and found satisfactory. This material has been supplied to the ECA for examination although it was available at the time of audit.
|
| UK12 | X |
|
| Although previous article 10 inspections have been satisfied with the audit trail for claims it is accepted that the system operated by TWI did not entirely satisfy the requirement actual defrayal.
| Corrective action is being taken and the project is looking at previous claims as well as overhauling their payment and claim process.
|
| UK13 | X |
|
| See above | See above |
| UK14 |
| | X
| Do not agree because the actions were taken in conjunction with the offer letter which is a legally binding document. The variation in intervention rates does not represent advance payments and is in line with the Commission's letter of November 2003 and regulation 1260/99.
| Currently in discussion with the ECA. |
| UK15 |
| | X
| No account is taken of the integrated nature of the projects and the need to take a reasonable pragmatic view that all costs should be assigned to one of the projects.
| It is admitted that "small" amounts of time may have been spent on non-ERDF projects. However, in the absence of time reporting, it is impossible to assess what "small" means. Further material and discussions are ongoing with the ECA.
|
| UK16 |
| | X
| The claim was in respect of retrospective salary costs and was therefore unusually high.
| Discussing with the ECA. |
| UK17 | X |
|
| Full breakdowns of the claims were provided to the ECA but due to a clerical error did not match directly the amount shown on the transactions listings.
| The beneficiary since the start of the scheme refined systems and have checks and balances in place to minimise such clerical errors as transaction duplication. The situation should not occur again in the future.
|
| UK18 | X |
|
| Observation accepted, but further evidence supplied to the ECA.
| Audit division has withdrawn its findings following the additional evidence provided.
|
| UK19 |
| | X
| Unsure about the ECA conclusions. | In discussion with the ECA.
|
| UK20 | X |
|
| The Commissioning authority believes that the tendering process was sufficiently robust
| Unsuccessful bidders were directly informed by letters of rejection and because of the timescale involved a notice that the contract had been let was not issued.
|
| UK21 |
| X |
| Differing interpretation of "in kind expenditure".
| Further material supplied to the ECA and discussions in progress.
|
| UK22 | X |
|
| Accepted that records were not complete. |
Additional material supplied to ECA and discussions in progress.
|
| UK23 |
Xb
| | Xa
| Overheads conclusion accepted.
Grant rate ineligibility not accepted because of the ability to vary grant rate so long as ultimately the contracted rate set out in the offer letter is delivered.
| Corrective action being undertaken and ECA informed.
Discussions ongoing with the ECA.
|
| UK24 |
| | X
| Comments accepted, detailed article 10 proceedings to be implemented in the next quarter.
| Additional material being supplied to the ECA and corrective action being undertaken.
|
| UK25 |
| | X
| Comments accepted, detailed article 10 proceedings to be implemented in the next quarter.
| Additional material being supplied to the ECA and corrective action being undertaken.
|
| UK26 | X |
|
| Corrective actions being undertaken. | Discussions continue with ECA and other audit organisations.
|
| UK27 |
| | X
| Fundamental disagreement with the ECA as to what constitutes open and competitive tendering. All arrangements for ESF comply with the relevant Statutory Instruments relating to procurement.
| |
| UK28 |
| | X
| Contrary to the ECA view, audit trail documentation did exist, and were sent subsequently to the ECA.
| |
| UK29 |
| | X
| Contrary to the ECA view, audit trail documentation did exist, and were sent subsequently to the ECA.
| |
| UK30 |
| | X
| Fundamental disagreement with the ECA as to what constitutes open and competitive tendering. All arrangements for ESF comply with the relevant Statutory Instruments relating to procurement. Since tendering had been carried out correctly, and therefore contract costs could be used, there was no need to justify real costs.
| |
| UK31 |
| | X
| Contrary to the ECA view, audit trail documentation did exist, and were sent subsequently to the ECA.
| |
| UK32 |
| | X
| A very confused finding. The project concerned was not subject to tender, and therefore used real costs, for which there was an audit trail
| |
| UK33 |
| | X
| Fundamental disagreement with the ECA as to what constitutes open and competitive tendering. All arrangements for ESF comply with the relevant Statutory Instruments relating to procurement.
| |
| UK34 |
| | X
| The Commission explanatory note allows flat rates to be used as real costs, and there is no requirement to prove that they are lower than real costs—the ECA is simply wrong.
| |
| UK35 |
| | X
| The Commission explanatory note allows flat rates to be used as real costs, and there is no requirement to prove that they are lower than real costs—the ECA is simply wrong.
| |
| UK36 |
| | X
| Article 4 checks had been carried out, but the ECA chose to ignore the evidence in the form of article 4 reports that were produced.
| |
| UK37 |
| | X
| A fundamental misunderstanding of the system of match funding used in England. Match funded provision and beneficiaries are identified at the start of projects, and not at the end, as asserted by the ECA.
| |
| UK38 |
| | X
| Fundamental disagreement with the ECA as to what constitutes open and competitive tendering. All arrangements for ESF comply with the relevant Statutory Instruments relating to procurement. Since tendering had been carried out correctly, and therefore contract costs could be used, there was no need to justify real costs.
| |
| UK39 |
| | X
| The use of flat rates was specifically allowed in a letter from the Commission DG Employment to the England ESF Managing Authority.
| |
| UK40 |
| | X
| This flows from the other findings that are disputed, and is therefore also disputed.
| |
| UK41 |
| | X
| A complete misunderstanding of the way in which match funding is identified. There was evidence relating to match funded projects and beneficiaries.
| |
| UK42 | X |
|
| Missing documentation | Yes. Following the audit 80 sheep were removed from the 2004 claim with appropriate penalties applied.
|
| UK43 | X |
|
| Over-declaration of land | Yes. Following the over-declaration appropriate adjustments were made to the claim.
|
| UK44 | X |
|
| Over-declaration of land. | Yes. Following the over-declaration appropriate adjustments were made to the claim.
|
| UK45 | X |
|
| The UK authorities accept a category of data was not included in the risk process, however as was demonstrated during the audit the net affect of the omission had no material impact upon the risk selection.
| Yes. The risk process has been corrected analysis.
|
| UK46 |
| |
| Unfortunately, a reply from the UK was overlooked. The UK Rural Payments Agency's Counter Fraud and Compliance Unit are now preparing a reply and this will be sent to the Court as soon as possible.
| |
Table 3:
Please indicate any general comments you have concerning
the 2005 Annual Report or general issues relating to the discharge
procedure.
Sections 6.16 to 6.21
The UK Department for Communities and Local Government, as
the Managing Authority, has been working very closely with the
Government Offices who have day to day responsibility for managing
ERDF, to ensure that the necessary steps are taken to satisfy
the ECA and the Commission's concerns, especially on issues which
would have been identified during an Article 4 monitoring check.
For instance, supplementary guidance was produced in October 2005
in agreement with the Commission to meet the recommendations set
out in various Audit reports, which all regions now follow.
Substantial work is also underway to pick up the number of
projects to be subjected to detailed monitoring visits, ensuring
an even spread across all years of the programme. This action
will help to address the concerns about the eligibility of expenditure
being declared and the retention of prime documentation.
Where monitoring activity has already taken place Government
Offices are reviewing the content to ensure it meets the standard
set out in the new monitoring framework.
Chapter 8
With regards to the Court's review of TACIS nuclear safety
interventions in the Russian Federation (RF) and Ukraine (excluding
the Chernobyl Nuclear Power Plant (NPP)). A similar review took
place in 2000. The Court comments on the nuclear programme relate
to: the relatively low priority given to radioactive waste management;
difficulty of measuring the TACIS contribution to improving safety
at individual NPPs, lack of clarity concerning the role of Delegations
in programming and implementation, project delays, procurement
delays, problems with VAT exemption, insufficient participation
at the central level. The Commission replies point to the need
to work on jointly agreed priorities, the centralised management
of the nuclear programme and the complexity of the work.
The Court concluded that since 2000 the Commission has made
major improvements in the management of the programme. Further
strengthening was recommended in: impact measurement; radioactive
waste management; dissemination; increasing Delegation involvement,
respecting contractual obligations, improving procurement. Commission
replies were positive.
These views reinforce our own experience. Nuclear safety
is an issue as important to the EU as it is to the CIS, whereas
other topics such as institutional reform have a lower profile.
But, introducing safety culture change in the CIS is a long process,
exacerbated in this case by a history of underinvestment and the
inevitable security sensitivities around the nuclear industry.
On DG ECHO, the main issue is the brief allusion to the Special
Report on the Commission's response to the Tsunami (8.11) and
the Commission's reply that it will address the Court's concerns
appropriately. The Special Report recommends that DG ECHO's monitoring
reports should focus more on checking project activities than
on results achieved. The Commission is right to respond (to the
Special report) that it does adequately cover project activities;
it is very important that DG ECHO should, like other donors, focus
on humanitarian impact. The report notes that DG ECHO experts
were not able to say which specific UN project activities were
funded by DG ECHO as opposed to other donors. Another principle
of Good Humanitarian Donorship is reduced or more flexible earmarking,
and there is an increasing tendency towards pooling humanitarian
funding (with common reporting); we think that DG ECHO should
be encouraged to be more flexible rather than less.
On the Western Balkans (ie CARDS), the only reference is
to the decentralisation of management of funds to national implementing
agencies in Croatia and Albania without the assessment of these
agencies' capacity required by the Financial Regulation. On Croatia,
the Commission argues that it acted in line with the Financial
Regulation in force, coupled with a subsequent Commission decision
providing the legal framework for decentralisation. The projects
in Croatia have also been managed without problems. On Albania,
the Commission claims to have carried out a visit to assess capacity.
In the end the Delegation took back management responsibilities.
The UK fully supports decentralising the management of funds
to national authorities—this is an essential part of preparing
the Western Balkans countries for accession. But we recognise
that this needs to be according to the regulations set out, and
in line with the capacity of the relevant authorities, which can
vary widely from country to country. The UK supports the Commission's
attempts to build this capacity through CARDS and then the new
Instrument for Pre-Accession.
Chapter 9
The Court's audit of the Phare and Turkey programmes tested
transactions under central and under decentralised management
and evaluated co-financing agreements. The Court's review of ISPA
included an examination of EDIS for Bulgaria and Romania and its
review of Sapard included an examination of 5 projects in Bulgaria
and Romania. The Court's 2006 audit of Phare investment projects
in Bulgaria and Romania in 2000 concluded that the audited projects
were generally in line with Phare objectives and were physically
in place. However, over half the projects assets were not, or
were only partially, being used for the intended purpose. These
shortcomings resulted from weak administrative capacity and a
lack of national resources in Bulgaria and Romania.
Overall the Court's 2005 Annual report concluded that the
transactions audited were not materially affected by error except
for those under Sapard. The Commission acknowledged that there
was an issue with Romania. The Court recommended: closer monitoring,
clearer procedures, more clarity on co-financing, and for Sapard
in both Romania and Bulgaria closer following of the accredited
procedures. The Commission responded positively and put across
the message that they regularly remind countries of their obligations
to stick to the rules.
These conclusions reinforce the earlier 2006 audit and Phare/ISPA/Sapard
Management Committee reports which regularly highlight the tension
between the large programmes to help Bulgaria and Romania meet
the accession timetable and their capacity to effectively implement
them alongside the ongoing govt funded improvements.
EDF
The ECA have once again (12th year running) certified the
accounts of EDF. The UK welcomes the Commission's sensible responses
to the findings of the 2005 audit, notes with approval that many
of the recommendations in the ECA's findings are already the subject
of Commission corrective action and further notes with approval
Commission's continuing follow up of corrective actions identified
in earlier reports.
General
The UK welcomes the ECA report and has the following general
comments to make:
While the UK agrees with the need for greater propriety on
EC expenditure it agrees with the Commission's comments on the
need to change the single transaction audit methodology employed
by the ECA when applying it to the multi-annual European programmes.
Until a more appropriate methodology is found there will continue
to be errors found and no recognition of any corrective action
taken, as the single transaction audit is time limited.
Another point is that the differing interpretations of regulations
by the DGs, the ECA and OLAF make conformity to the regulations
an almost impossible task. Neither do they help in the simplification
of regulations and therefore the likelihood of the ECA giving
an overall positive assurance of the accounts or enhance the attraction
of entering into a contract of confidence.
Slightly more detailed comments are:
The UK will continue to work with the Commission and the
ECA to improve the systems with relevance to proportionate action.
— The ECA 2005 Audit Report highlights deficiencies
in the reporting of Irregularities and suggests that the European
Commission is not following its own Regulations in respect of
the imposition of financial corrections and also suggests that
an increased level of checking is required of the day to day transactions.
This causes concern in the UK as it may result in a disproportionate
response by the European Commission.
— The UK is concerned with the continued variation
in interpretation of the Regulations by each successive audit
mission which have cast aside previously agreed control methods.
This is causing an unnecessary burden on the delivery bodies who
are continually having to adapt their systems to the ever changing
requirements of the auditors.
— Changes to the interpretation of the Regulations
are now being made far to late in the operational delivery of
the programmes. The UK does not see any reason to carry out additional
and even retrospective work to provide ever-increasing levels
of assurance as a result of changes in the interpretation of the
Regulations. Satisfying these additional requirements will require
additional resources as the current delivery methods are already
stretched managing the current programmes and designing and implementing
the 2007-13 programmes.
— There appears to a lack of coordination in the
timing of various audit missions to the UK. This has been promised
in the past, however it is not evident in the UK and in Scotland
there have been three audit missions running simultaneously.
— The new Regulations embrace the principle of proportionality.
The UK sees as a key principle that will determine our roles and
responsibilities in respect of our delivery of the new programmes.
Once the roles and responsibilities have been agreed with the
Commission this should be the benchmark against which we are judged.
We require to ensure that the ECA are in agreement with this position.
LINKS TO
THE 2004 SUMMARY
REPORT
The Report from the Commission—Member States' replies
to the Court of Auditors' 2004 Annual Report (COM(2006) 184 final
of 20 April 2006) is available on the web-site of the Commission
in all official languages:
The accompanying Commission staff working document is available
on the web-site of the Commission in English only:
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