Commissaris Kallas geeft toelichting bij beoordeling Rekenkamer op besteding EU-gelden (en)

SPEECH/06/682

Siim Kallas

Vice-President of the European Commission responsible for Administrative Affairs, Audit and Anti-Fraud

Speech to the European Parliament Plenary Session

European Parliament Plenary Session

Strasbourg, 14 November 2006

Chair, President Weber, Honourable Members, Ladies and Gentlemen,

I gave my preliminary reaction to this year's Annual Report in COCOBU on 23 October. The Commission is busy following up, correcting the errors detected. The day after the publication of the Court's report, the Commission sent letters to all member states inviting them to comment and address errors made in their respective countries.

So we will give full and timely follow-up to the Court's findings.

But, like you, the Commission has also used the time since the publication of the report to think about its political significance.

Clearly, this report is not yet an overall positive declaration of assurance.

On "legality and regularity", as you heard President Weber say, the Court gives a positive declaration on revenue, commitments, pre-accession strategy, administrative expenditure and CAP expenditure covered by the Integrated Administration and Control System.

For other areas, for instance research programmes or structural funds, the Court does not give a positive DAS.

The main reason is that the Court, when testing sampled transactions in these areas, finds too many errors. And as President Weber has said, errors stem "from simple neglect or error, poor knowledge of the complex rules, or presumed attempts to defraud the EU budget."

I think that, unfortunately, we deserve the Court's criticism of last year's controls in the research programme area. The reduction, by nearly a half, in the number of the Commission's ex post audits in this vulnerable area should have been avoided, and our recovery procedures should be faster and stronger. As it were, too many errors went un-noticed by us, and were then detected by the Court.

I believe the poor knowledge of complex rules is in fact the main cause of errors, including in this area. Frankly, I think the Commission had done too little, too late to pursue simplification and clarity of rules and guidelines. We're addressing this through our Action Plan, and through proposals for the new programming period. We welcome the continued attention and advice from the Court on how to improve.

Let's also take a look at "fraud". Any suspicions of fraud will be pursued rigorously by OLAF, as witnesses by the two cases recently reported by the press (Chernobyl, OIB).

But is the entire EU budget, as some journalists write every year, "riddled with fraud"?

Let me quote from the report on Management and Audit of EU funds published yesterday by the UK House of Lords. The report finds that “much of the coverage in the press suggests that there is a significant culture of corruption in Europe’s Institutions. Our investigation has uncovered no evidence to support this suggestion."

The Commission has fraud estimates for the two biggest spending blocks based on information from member States for agriculture and regional aid. The figures show that some 13-15% percent of irregularities notified are cases of suspected fraud. This corresponds to 0.05 % of agricultural spending and 0.53% of structural and cohesion funds. In terms of irrecoverable financial losses, the Commission wrote off € 90 million last year or some 0.09% of the budget. So the level of fraud is marginal.

This seems to be confirmed by the Court's audit work in 2005. Of all the information, audits and about nine hundred sampled transactions the Court looked at in 2005, only 4 led the Court to suspect fraud or serious wrongdoing and to inform the anti-fraud office OLAF. After analysis, OLAF could not confirm any fraud case based on this transmission. However, the Court traditionally provides useful input to OLAF's operational work.

Mr President,

After these comments on our weaknesses, the need for simplification and the level of fraud, I presume the discharge authority would also want to assess what impact errors found have on "value for money".

In structural funds, for example, the Court's report reveals (page 138) that the Court audited 95 projects in this area and found that 60 were affected by material errors.

So does this mean that two thirds of structural funds has been lost or wasted?

Does it mean that the objectives of these projects have not been achieved?

Clearly not. Some ground-breaking research may have been done without all the correct paperwork, and conversely, there can be projects, brilliantly executed in terms of formal rules and paperwork, but still failing to achieve their objective.

Unfortunately, the report gives no information on the true impact of the Community funding. So what conclusions can Parliament and the ordinary citizen in member states draw based on the Court's overview of the errors in structural policies?

The Court often states that it is only a messenger, and that the Treaty obliges the Court to give a statement of assurance on the whole budget each year. It does this through its samples of transactions and other audits. It tests compliance with the rules. This work, the Court does professionally, within the limits of its human resources.

But who then evaluates the impact of these errors on the achievement of policy objectives?

Does the European Parliament have the basis on which to do this? After all, together with Council, you are the budgetary authorities with the final word on future budget allocations.

The Court's report should offer you a basis for evaluating the effectiveness of budgets approved in the past.

In this perspective, I think one could invite the Court to evaluate the substantive impact of errors. We know the Court has the expertise to do this. They do this kind of "value for money" evaluations in special reports, which we highly appreciate. So why is such analysis absent from the annual report?

For the Commission, sound financial management means reaching the policy objectives in an efficient way and at a reasonable cost. It necessarily takes a multi-annual view of each aid scheme, and ensures that the control effort over the life of the scheme is proportionate in terms of costs and benefits.

When it finances research programmes, the Commission is well aware that few university professors are qualified accountants, and it knows that some will make mistakes in their claims on EU funding. Should the funding of research stop for this reason? No. We reduce the scope for error, but live with what remains.

Between the negative DAS and the positive discharge, something is clearly missing.

The Treaty requires the Court to assess the soundness of financial management (TEC art 248.2). Can it not assess whether, in a given year, the Commission has indeed taken the steps necessary to ensure value for money? This would not give the Commission an easier ride, and it would give all of us a more relevant ride!

You may think all this sounds rather radical. Perhaps it is, but the UK House of Lords goes even further in a very serious report published yesterday. The House says that "substantial improvements are needed to the methodology underpinning the Statement of Assurance" and proposes, among other things:

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  That the Court "should distinguish clearly between irregularity and fraud, publishing separate figures for the level of fraudulent transactions and administrative mistakes";
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  That "the Statement of Assurance should focus on giving a detailed summary of financial management in each of the spending categories and Member States" listing "those Member States demonstrating poor management of European funds".

The Commission will carefully study this interesting report.

Allow me also to touch on the issue of recoveries – or "claw backs".

In this year's DAS statement, the Court appears to throws doubt on the relevance of claw backs for the DAS, arguing that recoveries do not right wrongs, nor do they dissuade the final beneficiary from making errors.

This Commission thinks this does not fairly represent what actually happens. Every year, very significant amounts are clawed back by the Commission from Member States and by Member States from the final beneficiaries. This system contributes to the effective protection of the financial interests of the Union. It has a preventive effect by giving Member States an incentive to improve their management and control systems, to prevent, detect and recover irregular payments to final beneficiaries.

We – and indeed Member states – should get the credit for that, and it should affect the DAS declaration as well.

Mr President,

I would like to touch on a more positive note. The Commission has established working relations with many national audit offices and found a positive attitude towards auditing EU funds in shared management.

I am very encouraged by the announcement made by President Weber that the Court is intending to propose joint audits with these national audit offices, starting with the areas of Structural Funds and financial corrections in Member States.

Indeed, we can much better convince Member States to take more responsibility for spending from EU budget, if the Court is willing to work with – and eventually use -- audit evidence produced at national level.

I'll end with a comment on some of the good news in the Court's report. President Weber has pointed out that "the Commission successfully implemented the new accounting system with notable rapidity, and it now offers additional key information that is significantly more advanced than was provided by the previous cash-based system." We are proud of this achievement.

To sum up:

This is yet another negative DAS. The Commission regrets this. It will correct errors made and take further actions to correct system weaknesses, as announced in the Action Plan for an Integrated Internal Control Framework.

In acknowledging the work still to be done, the Commission also notes that important progress is made every year and that overall, the management of EU funds is sound. It is under control, but there is further scope for simplification of complex rules. Together with my colleagues, I look forward to the more detailed sectoral discussions in the discharge hearings ahead.

Finally, the Commission would like to highlight the missing link between the list of errors reported by the Court and the discharge procedure. The Commission would welcome an audit approach which also looks at effectiveness or "value for money". We believe this would assist the discharge authority in carrying out its important responsibility.

Thank you for your attention.