Factual memorandum to the Public Accounts Committee on the European Parliament resolution concerning discharge in respect of the implementation of the general budget of the European Union for the 2002 financial year

I. Introduction

1. I hereby inform the Public Accounts Committee about the European Parliament resolution concerning discharge in respect of the implementation of the general bud­get of the European Union for the 2002 financial year.

II. European Parliament resolutions concerning discharge

2. The European Parliament made its decision concerning discharge on the basis of six reports submitted by the Committee on Budgetary Control in March and April 2004¹⁾. The six reports were presented by the respective spokespersons at the meeting of the European Parliament on April 21, 2004. The six reports are as follows:

1. Report concerning discharge in respect of the implementation of the general bud­get of the European Union – the Commission
2. Report concerning discharge in respect of the implementation of the general bud­get of the European Union – the European Parliament
3. Report concerning discharge in respect of the implementation of the general bud­get of the European Union – other sections: the Council of the European Union, the European Court of Justice, the European Court of Auditors, the European Ec­o­nom­ic and Social Committee, the Committee of the Regions and the European Ombuds­man
4. Report concerning discharge in respect of the decentralised bodies (agencies)
5. Report concerning discharge to the Commission in respect of the implementation of the 6th, 7th and 8th European Development Funds
6. Report concerning discharge to the Commission in respect of the implementation of the European Coal and Steel Community (ECSC) budget.

Following the presentation and subsequent debate, the proposals of the Committee on Budgetary Control for resolutions concerning discharge were adopted without changes. The European Parliament thus followed the European Council’s recommen­dations of March 9, 2004 and granted discharge in respect of all sections of the bud­get of the European Union for the 2002 financial year.

3. In connection with the resolution concerning discharge in respect of the annual accounts for the 2002 financial year, the European Parliament presented several comments of a more general nature. I have decided briefly to summarise some of the comments in this memorandum, bearing in mind the issues emphasised by the European Parliament and the issues I have already reviewed in my factual memorandum of February 6, 2004, in which I informed the Public Accounts Committee about the annual report of the European Court of Auditors, the statement of assurance and special reports for the 2002 financial year.

4. In the following, I will outline the comments on the Commission’s administration relative to the problems about shared management, the Commission reform process and the consequences of enlargement. I will also refer to the comments on the work of the Court of Auditors and the comments in which Denmark is mentioned.

III. Comments on the Commission’s administration

Problems related to shared management between the Commission and the Member States

5. Since 1994, the Court of Auditors has pointed out that the underlying transactions are often subject to errors, particularly in the case of payments made in the Member States in areas of shared management. The budget’s two main items of expenditure, agriculture and the structural funds, are subject to shared management. These two areas are managed at many different levels, which increases the complexity. The European Parliament regrets that the situation in 2002 is no different from that in previous financial years.

6. The certifying bodies²⁾ have expressed their reservations regarding agricultural expenditure amounting to €300 million owing to problems in connection with the paying agencies in the Member States. It emerges that fewer errors occur in funds paid out to for example field crops, where the Integrated Administration and Control System (IACS) is used. However, only 58 % of payments are covered by the IACS, and only 14 Member States have fully introduced the system.

The European Parliament is of the opinion that Member States who do not use the IACS should be subject to sanctions in the form of forfeiting their right to agricultural subsidies.

7. The European Parliament emphasises that even in areas of shared management where the Commission delegates budget implementation tasks to the Member States,the Commission still holds the ultimate responsibility for implementation of the budget.

8. The European Parliament recommends a higher degree of coordination, cooperation and dia­logue between the agencies involved in budget implementation. The Parliament furthermore recommends the full implementation of the monitoring and control provisions (including the IACS) and emphasises that if the Commission yields on this matter, its position may be undermined in areas of shared management.

Problems with implementing the Commission reform

9. The European Parliament is of the opinion that the administrative reforms announced by the Commission were merely a facade and that little concrete progress has been made. The Parliament notes that the amount of progress on implementing thevarious reforms has differed a great deal, and observes that despite these improvements, delays and problems still arise. The Parliament finds that the problems relateparticularly to human resources and the implementation of the 24 control standards.

The 24 control standards are internal control standards designed for use in the internal control systems of the Commission’s Directorates-General. The standards are intended to ensure the legality and regularity of the underlying transactions. The Eu­ro­pean Parliament has noted that the Commission does not yet apply the 24 control standards to the full extent.

The European Parliament expects developments in human resources and the 24 control standards to be apparent from the annual activity reports in future.

Consequences of enlargement

10. The enlargement of the EU from 15 to 25 Member States means more rigorous demands on the Commission’s financial management. The European Parliamentdraws attention to the fact that the enlargement will put an extra burden on financial resources, further complicate already complex procedures and thus make greater demands on financial management. The Parliament thinks that the Commission and the Member States should take the opportunity to introduce a process aimed at increasing the transparency of financial management procedures to bolster public confidence inthe management of Community affairs.

11. The European Parliament encourages the national supreme audit institutions (the national audit offices) to play an active part in this process by adopting specific audit policies for the application of EU funds and by preparing an annual report on the management and application of EU funds in the respective countries. The national audit offices should submit this report to their national governments and parliaments, and to the governments, parliaments and audit institutions of the other Member States as well as the Commission and the European Parliament.

The National Audit Office of Denmark is currently a member of a working group under the EU Contact Committee, whose work specifically includes the promotion of reporting on EU matters to national parliaments and authorities, corresponding to my annual memoranda on the annual report of the Court of Auditors and discharge. For the sake of good order, I should point out that according to current rules, neither the European Parliament, the Court of Auditors nor the Commission is entitled to stipulate the issues on which the National Audit Office of Denmark should report, nor the way in which it submits its reports.

12. The European Parliament finds it necessary to increase the number of audits of the application of EU funds and streamline the audit process. It proposes that all involved parties assist in the following ways:

• Control agencies should introduce common audit standards in present and future Member States
• The national supreme audit institutions in present and future Member States should introduce mechanisms to enable them to carry out the same audit tasks as the Euro­pean Court of Auditors carries out at community level
• The supreme national audit agencies should intensify their mutual cooperation.

I am very much in agreement with the European Parliament’s view of the cooperation between the national audit offices of the EU countries, which are already committed to close collaboration. The National Audit Office of Denmark plays an active role in strengthening and expanding this collaboration. As I see it, the national audit offices of the EU countries should focus on making the results of their cooperation visible, and I offer my assistance in this connection. In addition, the National Audit Office of Denmark participates in the development of common audit standards for the International Organization of Supreme Audit Institutions (INTOSAI), which are also used in all EU Member States.

IV. Comments on the work of the Court of Auditors

13. One of the purposes of the discharge procedure is to improve financial management within the EU. The European Parliament includes the Court of Auditors’ reports in its decision-making basis for granting discharge. The Parliament is pleased that the Court of Auditors not only assists in rectifying errors but also helps to develop and improve the management of the EU by identifying solutions that may lead to improve­ments.

14. With reference to Article 143(3) and (4) of the Financial Regulation, the European Parliament requests that the Court of Auditors adapt the structure of its annual report so that it contains a section for each institution. This would facilitate the Parliament’s discharge-related work. The Court of Auditors has informed the European Parliament that it will accommodate this request.

15. The European Parliament has noted that, in conjunction with the enlargement of the EU from 15 to 25 Member States, the Court of Auditors has delegated a considerable number of its tasks to the audit groups.

16. The statement of assurance on the consolidated annual accounts given by the Court of Auditors (the “DAS”, an abbreviation of “la déclarati­on d’assurance”) is pri­ma­rily based on spot checks. The European Parliament therefore does not find the DAS a targeted instrument for combating fraud, etc. The DAS is a tool that provides an overall assessment of the financial management carried out by the audited institutions. The European Parliament requests that the Court of Auditors ensure that the DAS, and the assessments based on it, employ the latest international accounting methods and principles.

V. Comments in which Denmark is mentioned

17. Denmark is involved in a pilot project on the structural funds concerning the cooperation between the Commission and the control agencies of the Member States. The cooperation takes the form of a “contract of confidence” between the Commission and the control agency in the Member State. In Denmark, the pilot project focuses on the Regional Fund, and the controller of the National Agency for Enterprise and Construction has signed the contract of confidence with the Commission. The Eu­ropean Par­liament welcomes the basic idea behind the contract of confidence, which have been initiated as pilot projects in Austria and Denmark to date. The Parliament proposes that all the other Member States follow the example of these two countries.

18. The European Parliament has noted that the support scheme for “less favoured areas”(comprising mountain areas and areas affected by specific handicaps related toland cultivation) has not been evaluated since 1975, the year of its establishment. The Parliament states that the criteria defining less favoured areas can be adjusted. The Parliament believes it is problematic that the Commission seems to be having difficulty in balancing community and national interests, and is concerned about the current classification of less favoured areas. As things stand at the moment, about 56 % of the EU’s disposable agricultural land is classified as less favoured areas. The percentage sharevaries from 1 % in Denmark to 98 % in Luxembourg. The European Parliament is ofthe opinion that the support scheme should be re-assessed and tightened.

VI. Conclusion

19. In conclusion, I note that the European Parliament has given discharge regarding the implementation of the general budget of the European Union for the 2002 financial year.

Henrik Otbo