Presentatie van het jaarverslag 2006 aan de ECOFIN-raad door de rekenkamer (en)

ECA/07/30

Brussels, 13 November 2007

Speech by Mr. Hubert Weber

President of the European Court of Auditors

Presentation of the 2006 Annual Report to the ECOFIN Council

The spoken text will prevail in the event of differences.

Chairman,

Ministers,

Ladies and Gentlemen,

It is pleasure for me to present to you today the European Court of Auditors' Annual Reports on the 2006 financial year, which I presented to the Committee on Budgetary Control of the European Parliament in Strasbourg yesterday evening. I shall also be presenting these reports to the plenary session of the European Parliament in Brussels on 29 November 2007. It is important that both arms of the Community budgetary authority are well informed of our audit observations and recommendations, also in terms of their follow up and potential impact.

In addition to the Annual Report on the implementation of the 2006 general budget of the European Union and the Annual Report on the European Development Funds, the Court has adopted 24 Specific Annual Reports on the EU agencies and other decentralised bodies this year. In addition, the Court has adopted several Special Reports setting out the results of our performance audit work on a wide range of management issues and issued a number of opinions.

Main messages

Allow me now to give a brief overview of the main messages contained in the 2006 Annual Reports:

Reliability of the 2006 accounts

The 2006 consolidated accounts present fairly, in all material respects, the Communities' financial position and results for the year, except for an overstatement for accounts payable and pre-financing in the balance sheet. The Commission has made further progress with its implementation of accruals-based accounting, although some weaknesses still remain.

Improvements in risk management

The Court found that the Commission has made considerable efforts to address the weaknesses in the management of the risks to the EU funds. Some changes are already having a positive impact, such as a marked reduction in the Court's estimated level of overall error in agricultural transactions - although it still remains just above the materiality level. This improvement underlines the effectiveness of the integrated administrative and control system IACS and the simplification of claim and payment procedures in the newly introduced Single Payment Scheme.

Legality and regularity

The Court again gives an unqualified opinion on the transactions underlying revenue, commitments, administrative expenditure and pre-accession strategy, excluding Sapard. Furthermore, external actions' payments managed directly by Commission delegations in 2006 showed only a low incidence of error.

However, the Court again gives an adverse opinion on the legality and regularity of the majority of EU expenditure: primarily the part of agricultural spending not covered by IACS, structural policies, internal policies and a significant proportion of external actions. In these areas there is still a material level of errors found in the payments to final beneficiaries, albeit to different levels.

In addition, the Court is of the opinion that, taken as a whole, the underlying transactions of the European Development Funds, with the exception of payments authorised by the Commission's delegations in the beneficiary States, are legal and regular.

Reasons for the errors in the underlying transactions include neglect, poor knowledge of the often complex rules and presumed attempts to defraud the EU budget by claimants . Furthermore, in the area of non-IACS expenditure in agriculture, structural policies and internal policies, checks on expenditure claims, which are mainly based on information supplied by the beneficiary, are in many cases insufficient in number and coverage, and often of inadequate quality. What is required is better management and control of Community spending in both shared and direct management areas.

For the shared management areas of the EU budget the Court found the following:

For agriculture as a whole - €49.8 billion in 2006 - the Court found a marked reduction in the estimated overall level of error, although it still remains just above the materiality threshold. Agricultural spending is characterised by different types of transactions, which are subject to different risks and control systems. The IACS, which covers about 70% of the CAP spending, is an effective system in limiting the risk of irregular expenditure, where properly applied. In Greece, however, problems with IACS still remain unresolved. While the Single Payment Scheme simplifies claim and payment procedures, it has brought about side effects, such as the allocation of entitlements to landowners who never exercised previous agricultural activity, leading to a substantial redistribution of EU aid, away from farmers to landlords. Among new beneficiaries for EU agricultural aid are railway companies (the United Kingdom), horse riding or breeding clubs (Germany and Sweden) and golf or leisure clubs and city councils (Denmark and the United Kingdom). The Single Payment Scheme regulations also gave Member States discretion in relation to the allocation of entitlements, leading to unequal treatment of beneficiaries from one Member State to another, and even within the same country.

Financial corrections of agricultural payments, such as the Commission's multiannual conformity decisions for clearance, involve significant sums of money being repaid to the Community budget by Member States as corrections - or fines - imposed for failing to keep adequate systems. These recoveries to the Community budget continue to be funded by national taxpayers, rather than by the beneficiaries who have received Community funds irregularly.

For structural policies - €32.4 billion in 2006 - the situation remains similar to previous years. The Court identified a material level of error estimated to represent at least 12% of the total amount reimbursed to beneficiaries. The most frequent errors were claims for ineligible expenditure and failure to carry out tender procedures as well as a lack of evidence to support the calculation of overheads or the staff costs involved. The supervisory and control systems in the Member States were generally ineffective or moderately effective. The main weaknesses found were the managing authorities' failure to check that costs claimed for reimbursement have really been incurred and are eligible, the failure of the paying authorities to identify weaknesses in the managing authorities' work and failure of the audit bodies to carry out sufficient checks of appropriate quality on the expenditure of the programmes.

The Commission has taken measures to step up recoveries and improve the protection of the financial interests of the EU over the past few years. However, due to the complexity of the shared management of these funds with the Member States, the Commission still does not have at its disposal reliable information on recoveries of undue funding - the amounts and beneficiaries involved - nor of their financial impact on the EU budget. In fact, only six Member States responded to the Commission's request of November last year to report their recoveries of irregular payments.

Issues of EU financial management

The key to adequate management, in terms of assuring EU citizens that the use of EU funds is legal, regular and sound, is effective systems of internal control at all levels of the management of these funds. Based on the IFAC and INTOSAI International Auditing Standards and adapted to the specific EU environment, the evaluation of internal control systems is a key element of the Court's audit approach.

For the purposes of the Statement of Assurance, an important indicator of the quality of systems is the extent to which they limit the risk of irregular and illegal use of EU funds in practice. As stated in the 2006 Annual Report - and supported by both testing of transactions and analysis of the systems themselves - control systems still remain unsatisfactory in structural policies, and only partially satisfactory for the non-IACS part of agriculture.

The 2006 Annual Report identifies weak systems at the level of Member and beneficiary States, such as:

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  weaknesses in the scope and depth of the clearance of accounts work of the certifying bodies for agricultural expenditure;
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  insufficient on-the-spot checks by the Managing Authorities on the eligibility of expenditure and inadequate checks by the Audit Bodies on structural policy spending.

The Court's Single Audit model recommended the establishment of an effective framework for all internal control systems covering EU funds. All systems should be based on common principles and standards, while taking into account both the inherent risks involved and the balance between the costs of control and the benefits they bring.

The Court's audit results show that in practice the risks involved in the EU spending vary considerably in different areas of the budget: the estimated error rate on agricultural spending being close to the materiality limit, whereas for structural policies there continues to be a much higher level of error of legality and regularity. Given that the legal framework for the 2007-2013 programming period has been adopted, the higher inherent risk in structural policy transactions indicates the need to ensure that the resources for managing and checking this spending are better employed at all levels.

Among significant recent developments are the new requirements for Member States to provide annual summaries of the results of audits and controls, the volunteer initiatives by some Member States' audit bodies to issue "national declarations" and audit reports on national use of EU funds. The Court recognises the potential effect of national declarations and national audit work on raising awareness within Member States of the importance of internal control of EU funds. In our Opinion 6/2007, the Court states that these exercises could: stimulate a greater awareness at national level of responsibilities for management of EU funds; identify weaknesses to be resolved and examples of best practice; and increase transparency and accountability in financial management.

Moreover, the Court continues to play an active part in promoting cooperation with the Supreme Audit Institutions in the European Union and has taken a lead in a new working group dealing with common standards for the audit of EU funds throughout the Union.

For 30 years, the Court's work has helped improve legislation and promoted a more effective internal control structure and increased accountability for the use of public funds. The Court will continue in the future to respond to the challenges of the changing audit environment in order to ensure the usefulness of its work for the budgetary authority, the auditees and the public at large.

Conclusions

Allow me to conclude by saying that:

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  despite considerable efforts by the Commission to address the weaknesses in the management of the risks to Community funds, the Court once again gives an adverse opinion on the legality and regularity of transactions over the majority of the budget. Improvements have been found in particular in agriculture;
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  the high level of error found in the underlying transactions is caused by beneficiaries overclaiming - sometimes due to complicated legal requirements and rules, and unclear eligibility criteria - as well as continuing deficiencies in internal control;
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  the key to effective management of EU funds lies in efficient and reliable internal control systems at all levels of administration in all Member and beneficiary States.

I believe that the EU's citizens are entitled to expect EU funds to be properly managed and controlled across the Union.

Thank you for your kind attention.