Select Committee on European Scrutiny First Report


FINANCIAL MANAGEMENT


(21812)
13104/00
COM(00) 558

Commission follow-up report on the 1998 financial year.


Legal base:
Document originated: 27 October 2000
Forwarded to the Council: 30 October 2000
Deposited in Parliament: 22 November 2000
Department: HM Treasury
Basis of consideration: EM of 2 December 2000
Previous Committee Report: None
To be discussed in Council: March 2001
Committee's assessment: Politically important
Committee's decision: Not cleared; further information requested

Background

  5.1  On 26 January 2000, we reported on the Annual Report of the Court of Auditors for 1998.[18] We noted that the Report and the Statement of Assurance (on the reliability of the accounts and the legality and regularity of the underlying transactions) are taken into account by the Council and the European Parliament in the procedure for the discharge of the Budget. As part of its discharge of the 1998 Budget, the Council associated with its discharge Recommendation a number of detailed comments, addressed to the Commission, on the improvements it wished to see in the management of the Communities' resources.

  5.2  On 19 April, we reported on a Commission Action Plan for improving the financial management of the Community Budget.[19] The Action Plan analysed each main category of the Budget in the light of what the Commission acknowledged to be the "unacceptably high rate of errors" detected by the Court of Auditors. It made proposals which, together with actions already in hand, it hoped would "achieve a substantial reduction" in the error rate during its period of office.

The document

  5.3  In accordance with its now established practice, the Commission has made a report to the Council giving an account of its actions taken in response to the Council's comments on the discharge of the 1998 Budget. The report also includes an analysis of Member States' responses to the 1998 report of the Court of Auditors. The Commission's report makes extensive reference to its Action Plan for improving financial management, and also to its proposals for recasting the Financial Regulation, on which we reported on 29 November 2000.[20] The Council's comments covered both general matters and those relating to specific areas of budget resourcing and expenditure. As regards the general comments, the Commission indicates that it shares the Council's views on budget management and will incorporate them in the new Financial Regulation, which has as one of its main objectives the improvement of financial management. Whilst accepting that error rates are too high, the Commission points out that the Court of Auditors does not publish error rates and that existing clearance and inspections systems, particularly in respect of agricultural expenditure, succeed in recovering most of the losses incurred. The Commission confirms its intention to maintain the Personal Representatives Group on Sound Financial Management (on whose reports we regularly report). It also agrees to present an annual action plan for improving financial management and procedures, which will be updated after six months to reflect progress.

  5.4  The report goes on to outline the actions the Commission has taken in respect of all the specific areas on which the Council had commented, set out under the main budget category headings: the common agricultural and fisheries policy, structural measures, internal policies, external aid, and administrative expenditure. It also summarises the Commission's responses to the Council's comments on the various Special Reports made by the Court of Auditors during 1999.

  5.5  The second part of the report deals with the comments made by the Member States in response to criticisms of them made by the Court of Auditors.

The Government's view

  5.6  In her Explanatory Memorandum of 2 December, the Economic Secretary to the Treasury (Miss Melanie Johnson) provides a helpful summary of the specific responses in the Commission's report. She says that the Government welcomes the report as a necessary follow-through to the Annual Report of the Court of Auditors and the Council Recommendation on Budget discharge. She notes that it was the UK which first proposed that Member States should respond to relevant criticisms in the Court of Auditors reports. She does not refer specifically to the Commission's proposal to produce an annual Action Plan, with six-monthly updates. Rather, she regrets that the promised update on progress with the Action Plan (on which we reported last year) has not yet been received. She says that the Government will continue to press the Commission for that document.

Conclusion

  5.7  We are glad to see this report, which the Commission failed to produce last year in respect of 1998. It provides much evidence to show that the Commission is actively pursuing the Council's observations on improving financial management and procedures. On the face of it, it is difficult to criticise the Commission for lack of effort. The detailed progress indicated in specific areas also needs to be seen in the more general context of the Commission's commitment to radical internal reform, and the updating of key instruments such as the Financial Regulation and the Staff Regulation.

  5.8  However, we are aware (though we have not yet reported on it) that the Court of Auditors Annual Report for 1999 has, according to its President, "revealed once again an unacceptable incidence of error" and that the Court has refused to approve the management of the Community accounts as they relate to payments appropriations. That Report will, no doubt, also point out that the vast bulk of the errors relate to management of the Community's resources by Member States and other agencies, not the Commission itself. We shall report on the Court of Auditors Annual Report for 1999 in the New Year.

  5.9  In respect of the Commission report we now have, we can only express the hope that the many actions identified will before too long lead to identifiable improvements. To that end, we are pleased that the Commission intends to produce an annual report, regularly updated, which may prove a way of assessing progress. We note the Government's concern about the Action Plan published by the Commission last year. We invite the Minister to tell us when an update is likely to be available and to explain the relationship between the Action Plan and the annual action plan the Commission has proposed in its report. Bearing in mind that we will shortly be considering the Court of Auditors Report, we leave the document we now have uncleared so that we can review it again alongside that Report.


18  (20764) OJ No. C 349; see HC 23-vi (1999-2000), paragraph 11. Back

19  (21116) - ; see HC 23-xv (1999-2000), paragraph 9. Back

20  (21749) 12598/00; see HC 23-xxxi (1999-2000), paragraph 11. Back


 
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