Committee of Public Accounts


Press Notice No. 18 of Session 2004-05, dated 4 April 2005


EIGHTEENTH REPORT: FINANCIAL MANAGEMENT OF THE EUROPEAN UNION (HC 498)

Mr Edward Leigh MP, Chairman of the Committee of Public Accounts, said today:

"The task of achieving strong audit and accountability arrangements in the European Union is one Sisyphus himself, endlessly pushing his huge stone to the top of the mountain, would not envy. Little has changed because of institutional inertia. Ten years in a row the Community's accounts have failed to secure a clean bill of health. Achieving this by watering down audit standards would be unacceptable and the European Court of Auditors should resist any pressure to do so.

Progress will remain hopeless and public confidence low without drastic simplification of European Community schemes making them easier to control.

Reports by Member States on levels of fraud and irregularity amount to little. We have no idea what is going on if individual Member States can't agree with one another on what constitutes fraud and irregularity.

The UK's Presidency of the European Union, in the second half of 2005, is an ideal opportunity for the UK to exert vigorous pressure for real improvements in financial management and audit."

Mr Leigh was speaking as the Committee published its 18th Report of this Session, which examined financial management of the European Union.

In 2003, the European Union's budget was some €98.3 billion and the United Kingdom's gross contribution was €15.2 billion. After taking into account amounts received by United Kingdom beneficiaries and the rebate, the UK's net contribution was €4.0 billion. The Committee found that the sums involved emphasise the need for sound financial controls and robust financial management within European Union Institutions and in the Member States.

Historically, accountability and audit arrangements of the European Union have been characterised by inertia among the Institutions. The high levels of fraud and irregularity generally thought to exist in the European Union operations have seriously damaged the Community's reputation. The fact that the European Court of Auditors has qualified the Union's accounts for ten successive years gives credence to this view. The Committee believes that obtaining a positive Statement of Assurance is hopeless without dramatic changes to the Common Agriculture Policy and the Structural Funds to make them simple to control, thereby avoiding the high levels of fraud and error.

The Committee recognises the difficulties in implementing complex schemes, as in the United Kingdom the accounts of the Department of Work and Pensions have been qualified for the last 15 years due to fraud and error. The Committee does not believe that the positive Statement of Assurance should be achieved by watering down the Court's approach and believe the Court is correct to resist pressure to do so. Rather the Court should maintain recognised international standards but consider providing separate Statements of Assurance for each area of expenditure and by Member State.

The Commission is committed to change but there is still a long way to go to secure the standards that European taxpayers are entitled to expect.

The Court has never given a positive Statement of Assurance on the Community accounts since the Statement was introduced in 1994. This undermines public confidence in European Institutions. Despite its qualified opinion on the 2003 accounts, the Court noted that the Commission had made some progress in improving financial management. For example, the annual accountability reports produced by each Directorate General and the new accounting system.

There is considerable commitment on the part of the Commission, the Parliament and the Court to move towards a positive Statement of Assurance. The Court saw that this could be achieved if the Commission and Member States implemented a stronger framework of controls on which the Court could rely. The Court noted, however, that an adequate system of control over parts of the Common Agricultural Policy had taken years to implement. The scale of the task, across the whole budget, is therefore formidable and it is far from clear how quickly this worthy ambition can be achieved.

There is scope for more value for money work and reporting by the Court. The Court has a duty to examine "whether the financial management has been sound" corresponding broadly to the value for money reports by the Comptroller and Auditor General in the United Kingdom. The results of the Court's work in this area are included in its Annual Report and in Special Reports. But the scale of this work is totally inadequate given the importance of ensuring the effective use of community funds.

In 2003, Member States reported irregularities, including alleged fraud, with the value of €922 million, to the European anti fraud office (OLAF). While this was 20% lower than in 2002, it was higher than in 1999, when OLAF was created.

The precise level of irregularity, including alleged fraud, is however unknown and is difficult to calculate. For example, data relate only to reported cases and Member States report irregularities and fraud in an inconsistent manner. Trends, and therefore progress, are difficult to assess. OLAF is currently developing a methodology for estimating the levels of fraud within individual sectors of the budget and intends to extend this to differentiate between fraud and irregularity.

The United Kingdom's Presidency of the European Union, in the second half of 2005, provides an ideal opportunity for the United Kingdom authorities to press for the improvements in financial management that will be an essential pre-requisite for the Court to provide a positive Statement of Assurance. They should press for the simplification of the Common Agriculture Policy and the Structural Funds. They should support, and encourage other Member States to support, the development of the road map for a positive Statement of Assurance. They should also emphasise the need to take a robust stance against fraud and irregularity.


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