Select Committee on European Scrutiny Eleventh Report


MANAGEMENT OF THE COMMON FOREIGN AND SECURITY POLICY BUDGET


(22853)
12904/01

Special report No. 13 /2001 by the Court of Auditors on the management of the Common Foreign and Security Policy (CFSP).


Legal base:
Forwarded to the Council: 12 October 2001
Deposited in Parliament: 13 November 2001
Department:Foreign and Commonwealth Office
Basis of consideration: EM of 22 November 2001
Previous Committee Report: None
To be discussed in Council: Not applicable
Committee's assessment:Politically important
Committee's decision:Cleared


The Court of Auditors report

  9.1  The report provides an assessment by the European Court of Auditors of the management of the Common Foreign and Security Policy (CFSP) chapter of the European Community budget for the period 1997 to 1999. This followed its Opinion No.1/97 of 10 April 1997[8] which, according to the report, made the following points:

    "(a)  there was a lack of clear criteria for determining the source of Community funding;

    (b)    little or no information was available on the amounts disbursed by different Member States or by other donors;

    (c)    preparatory work was considered by the Council as administrative expenditure and therefore charged to Section II — Council — of the General Budget, leading to a loss of transparency in the management of the budget;

    (d)    financial resources were not made available in time to permit efficient implementation or to carry out the preliminary work required before a common measure is decided upon;

    (e)    in the absence of clear definitions, the Commission's role in determining the financial, legal and operational arrangements needed for the implementation of the CFSP measures involving expenditure was not clearly established."

  9.2  Article 11, paragraph 1, under Title V of the Treaty of European Union (TEU), sets out the objectives of the EU's Common Foreign and Security Policy (CFSP). Article 12 says that the Union shall pursue these objectives by:

    "—   defining the principles of and general guidelines for the CFSP;

    —  deciding on common strategies;

    —  adopting joint actions;[9]

    —  adopting common positions;[10]

    —  strengthening systematic cooperation between Member States in the conduct of policy."

  9.3  At Annex 2, there is a list of common measures decided by the Council during the period 1997-99, showing their financial impact on the budget. The TEU sets out the basic provisions for financing the CFSP, under two categories of expenditure, in the following terms:

    "(a)  Administrative expenditure which the provisions relating to the areas referred to in this Title entail for the institutions shall be charged to the budget of the European Communities.

    "(b)  Operational expenditure to which the implementation of those provisions gives rise shall also be charged to the budget of the European Communities, except ... cases where the Council acting unanimously decides otherwise.

      "Additional financial provisions are specified in the Council Decisions adopting common measures. When adopting joint actions, the Council lays down their objectives and scope, the means to be made available to the Union and, if necessary, their duration, and the conditions for their implementation."

  9.4  The implementing bodies for these measures, which differ considerably in subject matter, location and duration, may be international organisations, non-governmental organisations, national, provincial or local government departments, agencies or institutes, private sector companies or private persons.

  9.5  The financial instrument, sub-section B8 of the budget, on which this report focusses, covers Joint Actions and implementing decisions of Common Positions. The average amount committed was _35 million per year during the period 1997-2000. From 1999, the financing of operations which contributed to developing and consolidating democracy and the rule of law, respect for human rights and fundamental freedoms, and support for elections and election monitoring was transferred from subsection B8 (CFSP) to subsection B7 (External actions).

  9.6  The Court summarises its findings as follows:

    "Despite a number of changes in the Treaty on European Union, the Commission's role in determining the financial, legal and operational arrangements is still not clear. Depending on the action, either the Commission or the Council defines the arrangements for its implementation. In practice, this complicates day-to-day management both in the field and at headquarters level (see paragraphs 19-30).

    "Criteria were laid down by the end of 1999 on the sourcing of Community funding for CFSP actions but exceptions were left open for so-called 'borderline cases'. Furthermore, only limited information is available on contributions in kind made available by the Institutions and on the amounts contributed by different Member States. The basis for the sharing [of] costs between other donors and the Union has not been adequately laid down (see paragraphs 31-40).

    "In 2000, about 40% of the commitment appropriations used reflected decisions taken by the Council before 31 December 1999. In 1999, the equivalent percentage was 19%. In the years 1997-1999, the total amount of Council Decisions in respect of the CFSP operations exceeded the appropriations available by about 24% (see paragraphs 41-43).

    "The time lapse between the Council Decision and the first payment increased considerably from the year 1998 to the year 1999, and was then even higher than in 1997, when the procedure to transfer appropriations from the reserve to the operational budget lines was used (see paragraphs 44-47).

    "Contracting was very complex in a number of actions as a result of an accumulation of extensions and other adjustments, to the extent that a proper follow-up of the financial situation was made very difficult (see paragraphs 48-54).

    "Arrangements for remuneration and salary-related costs and allowances for Special Representatives and office staff are not laid down or not applied unambiguously (see paragraphs 55-58).

    "Reporting is often late and irregular, and reports in some cases present insufficient information. This forms a weak basis for any evaluation. The limited frequency of financial reports, in particular, forms a serious constraint to the Commission in supervising projects on a systematic basis (see paragraphs 59-61).

    "The question of the definition of administrative versus operational expenditure is still not solved: although a budget line was introduced from 1998 under subsection B8 to cover preparatory costs (which were previously regarded as administrative costs), the Council decided on 30 March 2000 that the cost of EUSRs[11] should be considered to be administrative expenditure, to be covered by the budget of the Council's General Secretariat (see paragraphs 35 and 62-64).

  9.7  On the basis of its audit conclusions, the Court makes the following recommendations:

    "—  the European Parliament, the Council and the Commission should adopt at an interinstitutional level clear operational principles and arrangements with regard to the Commission's role in the implementation of the CFSP;

    —  the financing of the CFSP-actions should be managed in a more transparent manner;

    —  the Commission should launch an enquiry on the causes of long delays and reassess the action as well as the partner for the management of the action;

    —  the Commission should amend contracts retroactively or extend them only in cases of force majeure. Certain practical measures facilitating the smooth implementation of actions should be sought;

    —  the Council and the Commission should establish clear rules on remuneration and salary related costs;

    —  arrangements should be laid down for adequate reporting, audit and evaluation."

Delays in launching actions

  9.8  In the body of the report the Commission comments more fully on the time lapse between Council Decisions and the first payment by the Commission. This is often considerable, it says, despite the apparent urgent nature of many interventions. During the period 1997-1999, the average time was 173 days. In one case it was 4 days but for half of the cases in 1999 it was between 128 and 183 days. Annex 4 shows that in the case of the Council Decision on Conflict Prevention and Resolution in Africa[12], it was 716 days. The Court recalls that it pointed out in its Opinion No. 1/97 that one cause of delays was that the Commission was not sufficiently involved in the preparatory phases of common measures. Delays were also caused by problems of co-ordination between Commission departments. The Commission claims that these problems should not occur again, following reorganisation of CFSP tasks within the organisation.

Contracting and extensions

  9.9  The report describes difficulties in the very complex task of contracting for the assistance programme to support the Palestinian Authority in its efforts to counter terrorist activities emanating from territories under its control. It also draws attention to other cases where contracts were amended to extend their validity after they had expired: "The Commission does not have the authority to do this. The reason was often that all of the amount committed had not been used by the time the contract expired. In these cases the unused funds should have been decommitted." Two contracts concerning the EU Special Representative for the Great Lakes Region exceeded the budgetary commitments by _1.2 million. Such practices are contrary to Article 1.4 of the Financial Regulation, the Court notes.

  9.10  Council Decisions usually indicate the planned duration of the actions authorised, to take effect from the date of the Decision. The Court comments:

    "Whilst the duration may remain realistic, the deadline for the actions, also mentioned in the Decisions, rapidly becomes obsolete if the preparation of an action takes so much time that the contract for its implementation is signed with considerable delay. This leads to situations where the contract goes beyond the deadline set by the Council Decision, or to operations with more limited scope than planned in the Council Decision. It has also required in some cases a Council Decision with the sole aim to extend the deadline."

  9.11  Annex 3 covers budgetary execution 1997-1999, annex 4 covers time lapses in implementation of Joint Actions having financial implications and annex 5 covers closure of actions.

The Council's reply

  9.12  The Court's Recommendation 1 reads as follows:

    "The European Parliament, the Council and the Commission should adopt at an interinstitutional level clear operational principles and arrangements with regard to the Commission's role in the implementation of the CFSP.

    "In this context for example the following matters in particular should be dealt with:

    "a)  the role of the Commission in influencing the conditions for the implementation of Council Decisions related to joint actions and common positions should be enhanced;

    "b)  the Commission's role in closing an ongoing action, when its continuation is no longer relevant, should also be enhanced;

    "c)  the present classification of the costs of the Special Representatives as administrative expenditure should be reconsidered;

    "d)  the Commission services should have an adequate staffing level to meet the requirements of managing properly the CFSP actions."

  9.13  The Council replies that this Recommendation will be debated fully in the Council bodies.

  9.14  Recommendation 2d reads:

    "d) the preparatory costs, financed by the Council, should have a separate budget item".

  9.15  In response, the Council comments that use has been made of Budget Item 1113 to a very limited extent in the past, but not at all in 1999 or 2000, to cover CFSP expenditure. It undertakes to see if it can place these costs under a separate Budget item when preparing the Draft Estimates for 2003.

  9.16  Apart from these remarks, the Council agrees with all the observations in the report that related to it.

The Commission's response

  9.17  The Commission comments:

"Regarding the legal framework of CFSP, Article 14 TEU foresees that the scope, means and

    condition for the implementation have to be laid down in the Joint Action. Yet, the Commission retains certain discretionary powers as regards the modalities of implementation in accordance with Article 274 EC Treaty. Furthermore, and notwithstanding the somewhat vague working of Article 18 of the TEU, in practice a division of labour is emerging in a logical way: the Presidency is responsible for the overall achievement of the objectives of the Joint Action (JA), assisted by the Secretary General / High Representative (SG / HR), while the Commission is responsible for the proper execution of the actions through preparing and negotiating contracts with the implementing agencies and monitoring of implementation as reported to the Commission.

    "The Commission stresses that the criteria for Community funding and notably the budgetary remarks have been strictly respected.

    "On the other hand it agrees that during the observation period of the audit, there were cases where information was lacking on the contributions of third parties. For political reasons and for reasons of good management it is further not always possible nor desirable to flag exactly the amounts of each contributor. In fact in order to create the required political momentum to engage in a specific project often political pledges are solicited which, due to the political development on the ground, are not always honoured afterwards by the third parties being geographically or politically less concerned than the EU. The Union might, however, for imperative reasons of conflict prevention or political stabilisation, have an interest to continue the project in question irrespective of possible lack in contributions.

    "There is, however, a clear improvement on this issue in 2000 and 2001 since contributions in kind are indicated in the Financial Statements."

    "In terms of rule compliance, the practice of committing appropriations during the budgetary year after the Council Decision is not irregular. The objective in implementing CFSP actions is the adoption in the same budgetary year of the budgetary commitment (i.e. the Commission Decision) and the legal commitment (i.e. the contract)."

    "In the case of renewal of an existing action with a calendar year end (this applies to most financially important actions), the Council has to take a decision sufficiently early for the Commission to be able to make its financing decision and legal commitment in the same year. In terms of sound financial management, the Commission is therefore often put in a difficult position as the Council decides the renewal of an action at a date too close to the budgetary year end.

    "Tailor-made solutions often need to be drawn up for the implementation of Joint Actions. Standard contracts can rarely be applied, which means that negotiation and preparation of contracts to implement Joint Actions normally takes more time than in the case of grants to NGOs or international organisations."

  9.18  The Commission notes that, from 2001 on, the salaries and related costs and allowances for Special Representatives have been financed from the administrative budget of the Council. In December 2000, it drew the attention of the Permanent Representatives Committee (COREPER) to problems in implementing Council Decision of 30 March 2000[13]. In 2001 it initiated an audit of EU Special Representatives, partly in order to seek a clearer distinction between administrative and operational expenditure.

  9.19  The Commission welcomes the Court's proposal that there should be "clear operational principles and arrangements with regard to the Commission's role in the implementation of the CFSP, and fully supports the request for more transparency. Improvements can be made, notably by the proposed rationalisation of the number of budget articles in the PDB[14] 2002 as proposed by the Commission."

  9.20  As regards financial and technical reports from beneficiaries, the Commission acknowledges that these have been "insufficient" in some cases and that these should be improved in future through "a closer and more inter-active follow-up". It says that the average project lasts for one year and normally requires two financial reports. These are obligatory prior to payment, to ensure sufficient and regular control.

The Government's view

  9.21  The Minister for Europe (Mr Peter Hain) comments:

    "The Government considers it important that the European Community budget is managed to the highest standards of efficiency and effectiveness. It therefore welcomes the Court of Auditor's report on the administration of the CFSP chapter of the budget. It notes that most of the report's specific recommendations are essentially administrative and directed at the European Commission as the implementing authority for decisions by the Council to commit funds from the CFSP budget. The Government also notes the full response by the Commission and the acknowledgement by the Court of Auditors within the report of notable improvements in the framing of Joint Actions by the Council and the administration of the budget by the Commission since the period covered by the report. The Government will consider with EU Partners the scope for further improvement in the use and management of CFSP expenditure in the light of the Court of Auditors' report."

Conclusion

  9.22  The Court of Auditors makes a number of practical recommendations on action that should be taken by the Council and the Commission to improve the Union's management of the Common and Foreign and Security Policy (CFSP). In their responses, both institutions acknowledge that, for the most part, the findings and the recommendations are sound. For its part, the Court notes that there have already been improvements, which is encouraging. However, significant areas of activity continue to require therapy. Some maladies are familiar to us, having been highlighted regularly over the years in reports on the Community's external aid activities.

  9.23  We refer in particular to difficulties with time lapses, extensions and reporting by beneficiaries. The problem identified in the report of the duration of an action stated in the Council Decision and the date at which it starts to be implemented should surely not be difficult to resolve with an appropriate form of words in the Decision. On extensions to contracts, the Commission has undertaken to investigate how these can be granted as a rule rather than an exception. It appears that a number of the difficulties encountered could be resolved by a more pragmatic and less bureaucratic approach, without an unacceptable loss of control and with the gain of a lot less manoeuvring by all parties to achieve the objectives sought.

  9.24  We note that the Government has undertaken to consider with its EU partners the scope for further improvement, but are disappointed that the Minister has not attempted to comment in more detail on the report in general or on what improvements in particular he has in mind. We urge him to press for the Council and the Commission to set targets for resolving the structural problems identified by the Court, or, where solutions are elusive, for reporting to the Court and to the national parliaments, including this Committee, on steps taken.

  9.25  We now clear this document.


8  Not published and not submitted for scrutiny. Back

9  According to Article 14 (1) of the TEU, "Joint actions shall address specific situations where operational action by the Union is deemed to be required." Back

10  According to Article 15 of the TEU, "Common positions shall define the approach of the Union to a particular matter of geographical or thematic nature." Back

11  European Union Special Representatives. Back

12  97/690/CFSP. Not deposited. Predates scrutiny of Pillar 2 documents. Back

13  Not deposited. Back

14  Preliminary Draft Budget Back


 
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