EU Financial Management

That may be so, but I think it unfair to suggest that there is no desire or attempt, as part of the future management of finances, to examine the whole question of value for money, best value and waste. If my hon. Friend had said that the commitment was not as great as he would like it to be, perhaps we could agree—but to suggest that there is no desire to tackle the issue of waste in the European Union seriously is slightly unfair. The second issue that I want to discuss is what is being done to improve financial management. The issues in the reports are all too familiar to Members, but, as I have said throughout, that does not mean that nothing has been done to address the problems. In recent years the United Kingdom has championed a number of measures that have demonstrably improved the quality of financial management by the Commission, and that of the information that we receive. Many of them were introduced under the direction of Lord Kinnock—I am sure that that will prompt applause from Opposition Members—when he was vice-president of the European Commission. For example, the revised financial regulation clearly defined the roles of those accountable for the budget, introduced an independent internal audit facility, required all directors general to sign an annual declaration of assurance on the budget, and ensured that all expenditure was subject to the setting of objectives and the evaluation of their achievement. A little earlier, the UK was instrumental in shaping the structure and remit of the anti-fraud office, OLAF. The Chancellor called for a strong independent anti-fraud office, which would have the power of immediate and unannounced access to all European institutions. Anti-fraud measures have been adopted. The Commission’s report for 2004 summarises achievements such as the conclusion of an agreement with the cigarette company Philip Morris International, which will establish an effective system to combat cigarette smuggling and counterfeiting in the future. The Commission also considers the issue of co-operation with member states, particularly on the effectiveness of the mutual assistance provisions for the exchange of information concerning irregularities detected, and the methods and practices used in suspected fraud cases. As for the quality of financial management information, Members will know that the Commission introduced a modern accounting system ahead of most member states, on time and within budget, on 1 January 2005. It will provide full accruals accounting, and should sort out the qualifications raised by the European Court of Auditors. The proof of the pudding will be in the ECA’s report on the 2005 budget, which we expect to receive in November this year. On the institutional side, there has been considerable debate about how to optimise effectiveness and efficiency. I shall say something shortly about the Commission’s ““Roadmap to an Integrated Internal Control Framework””, but let me first consider OLAF’s work in response to the points that have been made. How good a job does it do? Is it effective in the fight against fraud? Does it have the right management and organisation to make a difference? That latter question was considered by the ECA in its special report on OLAF. Its main conclusion, with which we agree, is that it is not appropriate to change the status of OLAF, which currently operates as a service within the Commission. It has a hybrid structure and its director has operational independence so far as investigations are concerned, but it supports the Commission in other duties such as policy development. From time to time there have been calls for OLAF to become totally independent of the Commission, but the ECA believes that OLAF’s hybrid structure has not adversely affected the independence of its investigative function, and indeed brings with it some advantages. For example, it shares the Commission’s power to carry out on-the-spot checks in member states under existing sectoral legislation. The ECA considers that OLAF’s resources are sufficient and that it has made considerable improvements in its procedures, but of course it is only fair to say—my hon. Friend the Member for Glasgow, South-West will be interested to hear this—that the report was not without its criticisms. The ECA criticised OLAF’s relations with its supervisory committee and its performance in respect of human rights. OLAF acknowledges that its relationship with the committee could be better, and I hope that it will take the opportunity to review that and to make a new start with the new committee that has recently been appointed. OLAF has already addressed the human rights issue through its proposed amendments to its governing regulation. Last year we considered the complementary evaluation report, which showed that OLAF had handled a total of 1,688 cases up to 30 June 2004, in addition to inheriting 1,408 cases from its predecessor, UCLAF. Since 1999, OLAF has reduced the average duration of an investigation from 29 months to 22 months, and the total financial impact of cases closed by OLAF was around €4 billion. The supplementary activity report—produced to cover the six months from July to December 2004, because OLAF intends in future to report on a calendar year basis—updates and expands those performance figures. OLAF has handled a further 720 cases, and the total financial impact of cases that it has closed now stands at €5.8 billion. A total of €198 million was recovered from 2002 to 2004. So the figures are improving, and show that the fight against fraud is beginning to succeed. What will happen next with OLAF? We expect a revised proposal to amend its governing regulation later this year, and we will ensure that that takes account of the ECA’s findings. I hope that OLAF will continue to analyse the true extent of fraud, for only when we have a reliable understanding of frequency of occurrence and identification of high-risk areas can we target effective preventive action. That brings me to the third area that I wanted to cover: the key next steps. The action plan has been established by the Commission and was agreed by Ministers in ECOFIN on 8 November last year; it covers the steps to be taken by the Commission, member states and the ECA. It bears repeating that the management of agriculture spending and structural funds is shared between the member states and the Commission. Those headings account for about 80 per cent. of the total EU budget, which is one reason why the ECA has frequently highlighted problems in its past reports. As we have discussed today, member states have vastly differing systems and organisations for managing these funds, and the Commission is often unable to obtain the degree of assurance that it seeks in order to satisfy the ECA. In response to calls from the European Council and the European Parliament to take action following the ECA report of 2003, the Commission issued a ““Roadmap to an Integrated Internal Control Framework””—a snappy title if ever there was one—in June last year. That road map provided a real opportunity to deliver results—to deliver more concrete trust and visible belief in EU financial management and control systems. During its presidency, the UK was very willing to play an active role in taking that forward. The road map was proposed by the ECA itself and in its view, the answer to the problems that it uncovers every year is a system with a number of characteristics. Controls should be applied to a common standard in an open and transparent way, so that the results can be relied on by all parts of the system.