UK Parliament / Open data

EU: Financial Management and Fraud (EUC Report)

My Lords, I very much welcome this thorough and wide-ranging report from the European Union Committee, which resulted from the inquiry by its Sub-Committee A, and I congratulate its chairman and members. As is customary, I declare an interest in that, although I spent a greater part of my career in the British public service, I was also for some time an official of the European Commission. The noble Lord, Lord Pearson of Rannoch, will be glad to know that I have a well deserved pension. The committee is right to seek to indicate practical ways in which the financial management of European funds can be improved, and to note, as it shows in paragraph 148 of the report, that the Commission and the European Parliament are actively addressing financial management issues raised by the Court of Auditors in its annual audits. This, of course, deserves full attention. I select from this wide-ranging report a number of key points and recommendations with which I strongly agree. First, I believe that the European Union Committee gives good advice when it states in paragraph 146that, "““a more accurate refection of the substance of the Court’s annual audit and the Statement of Assurance would be achieved if these two functions were more clearly separated. In addition, the single Statement of Assurance should be split into a series of statements on each of the different spending categories””." This is in practice what we do here, since the Comptroller and Auditor-General deals with departments and accounts separately and does not seek to give a single statement of assurance on government accounts as a whole. In short, the EU Committee’s recommendation would ensure that the annual audit of all revenue and expenditure of the Commission would be separated from the broader objectives of the statement of assurance. It should more accurately indicate where any irregularities might exist. It would also provide a better basis for a more accurate and more balanced presentation to the European public by the media. Secondly, I note and I was surprised to see in paragraph 151 the committee’s conclusion that, because of the small number of transactions actually looked at each year, the court’s methodology cannot lead to an accurate picture of financial management. I am not able to judge this, but the Court of Auditors is a highly responsible European institution and I am sure that it will examine this conclusion carefully. Thirdly, because of the large percentage of European expenditure which is paid out in member states, as already indicated by noble Lords who have spoken, I welcome the closer co-operation between the Court of Auditors and the audit institutions in the member states. I would not see any objection to a supervisory role for the Court of Auditors over the auditing of European expenditure in the member states, but I note that the Government do not agree because of the accountability of national audit authorities to national parliaments. I should say to the Minister that I strongly welcome the Government’s recent decision that there should be a statement of assurance by the UK Government. That is a very good step forward and a lesson to everyone other than the Dutch who have done it already. More generally, I wish to emphasise, as I did in evidence to the committee, that it is a matter of concern that much comment in the UK on European Union accounts and expenditure is often on the lines that that part of expenditure which has not received a statement of assurance from the Court of Auditors is expenditure lost by fraud or corruption, which is of course completely wrong. I am glad that the committee’s report and the Government’s reply, while rightly stressing the importance of action against any fraud, make that point clearly. The removal of that misunderstanding is long overdue. The Court of Auditors does not work like a private auditor certifying the accounts of a public or private company. First, it tracks all errors—important or not—with or without a financial impact. Secondly, it cannot give a statement of assurance in some cases where it does not have the full information, but without implying that these cases involve fraud or corruption. Thirdly, it does not take account—nor does much British opinion take account—of the fact that the Commission claims back in later financial years following errors by member states a considerable amount of money; for example, about €400 million on agriculture recently and €518 million on certain public work contracts for 2000-04. Those noble Lords who have dealt with European affairs know that those claims for huge amounts of money give rise to serious difficulties in the Council of Ministers, which are much greater than some of the other issues that we are talking about today. The committee points out tellingly that the Comptroller and Auditor-General stated that he would not have been able to give a statement of assurance on the UK Government’s accounts because he qualified a number of them. But that does not imply that all the problems in the UK were due to fraud or corruption—it is the same basic point. Administrative mistakes are almost bound to occur in many public administrations. You cannot rule that out. In addition to this general point, which is absolutely vital to remove the long-running misunderstanding here, I stress that in its 2004 report, the Court of Auditors certified, subject to one point now covered by the introduction of the accrual accounts, that the accounts of the European Commission are reliable. I believe that this is the 11th year in a row that the court has given a positive declaration on the Commission’s accounts; that is, every year since it was required to make a statement of assurance. The court also gave a positive declaration on all revenue expenditure and all administrative expenditure of the Commission—there is a lot of misunderstanding on that point also. On the administrative expenditure of the Commission, there has been a positive declaration by the Court of Auditors. The court gave a positive declaration on important elements of the expenditure largely made by or in the member states—namely, the pre-accession aid, which is difficult to operate, the European Development Fund and a large part of agricultural spending. That latter point was because of the efficient working, which I understand the Government support, of the European Union’s fairly new Integrated Administration and Control System. That is a good system and I ask the Minister to let us know whether it continues to be extended over a wider area of agriculture expenditure. It covers quite a lot already. In conclusion, I express a strong hope that the committee’s report will help to deal with the real issues and will contribute to burying unjustified references to fraud and corruption.
Type
Proceeding contribution
Reference
690 c77-9 
Session
2006-07
Chamber / Committee
House of Lords chamber
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