Brussels, 29 November 2007
By Mr Hubert Weber,
President of the European Court of Auditors
Debate on the 2006 annual report
at the European Parliament
The spoken text will prevail in the event of differences.
Ladies and Gentlemen,
It is a pleasure for me to be able to take part in your debate on the European Court of Auditors' Annual Reports concerning the 2006 financial year. I already presented these Annual Reports to the European Parliament's Committee on Budgetary Control on 12 November 2007 and, on the following day, to the ECOFIN Council.
Allow me to begin with 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 EU funds. Some changes are already having a positive impact, for example in the agricultural sector.
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.
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. Where properly applied, the IACS, which covers about 70% of the CAP spending, is an effective system in limiting the risk of irregular expenditure.
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.
In addition to exposing problem areas, demonstrating them by means of illustrative cases, the Court considers it its task to highlight developments that may be of importance to political decision-makers. For example, the Court has pointed out that, 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. Although legally permissible, this leads to a substantial redistribution of EU aid, away from farmers to landlords. Among new beneficiaries for EU agricultural aid are railway companies, horse riding or breeding clubs and golf or leisure clubs and city councils. The Single Payment Scheme regulations also gave Member States discretion in relation to the allocation of entitlements, leading to unequal treatment of beneficiaries.
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.
In the Court's view, the Commission should lead by example in the case of expenditure which it manages directly - in internal and external policies. Although improvements can be seen, for the internal policies directly managed by the Commission - €9.0 billion in 2006 - the Court again found a material level of error. The main cause was reimbursements to beneficiaries who had overstated the costs for projects.
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.
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 procedures, 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.
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 controls and the benefits they bring.
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 to deal with common audit standards and comparable audit criteria in the EU context.
Allow me to conclude by saying that:
-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;
-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;
-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.