Published: 20 April 2007
NAO reports on Financial Management of the European Union
Sir John Bourn, the head of the National Audit Office, has reported to Parliament on the financial management of the European Union.
His report summarises the main findings of the European Court of Auditors’ report on the implementation of the European Union budget for 2005 and focuses on recent developments in the financial management of the European Union.
The European Court of Auditors decided not to provide a positive Statement of Assurance on the legality and regularity of European Community expenditure for the twelfth year in succession.
However, the Court concluded that except for, for example, the effects of some errors on balance sheet items, the accounts presented fairly in all material respects the financial position of the European Community.
Taken as a whole, the underlying transactions were legal & regular with respect to revenue, administrative expenditure and most pre-accession expenditure.
But there were material errors on some elements of the operational programmes.
In 2005 the European Commission produced, for the first time, its annual accounts on an accruals basis. This important development was achieved within an ambitious timescale.
The Court’s report also observed that improvements in financial management noted in recent years, such as progress on agricultural payments subject to the Integrated Administration and Control System, were consolidated in 2005.
Also in 2005, Member States notified the European Anti-Fraud Office (OLAF) of just over 12,000 cases of irregularity, including suspected fraud, with a value of some €1 billion.
The value of reported irregularities represents a 5.3% increase from 2004, which is partially due to improved reporting by some member states.
Sir John noted that it was important to distinguish between irregularities and fraud, and that the lack of a positive Statement of Assurance does not indicate that European Union expenditure is subject to an excessive level of fraud.
Sir John examined the Court’s findings in relation to the United Kingdom.
Some problems were noted in relation to customs checks & flock registers, and in relation to control systems governing Structural Measures expenditure.
These issues are under discussion by the Commission and the United Kingdom authorities, and final conclusions on them have not yet been reached.
Sir John also examined proposals by individual Member States to improve their own control over European expenditure.
This included the United Kingdom’s proposal to publish a statement of assurance on the national use of European Union funds in the UK giving Parliament a greater role in scrutinising European Union spending.
Sir John Bourn, head of the NAO, said:
“There has been some progress in strengthening the financial management of European Union funds.
Producing accrual accounts for 2005 was a considerable achievement by the Commission. But the achievement of a positive Statement of Assurance on the underlying expenditure remains a significant challenge for the future.
I am pleased to see Member States of the European Union, such as the Netherlands, Denmark and the United Kingdom, taking forward the development of national statements of assurance which will allow national parliaments greater scrutiny of European Union expenditure in their jurisdictions.
It is essential to maintain the momentum of these improvements in financial management and it requires the support and cooperation by all the authorities – the Commission, the Council, the Court and Member States.”
The European Court of Auditors is the external auditor of the European Community and the Court reports annually on its findings on the management of Community funds.
It also provides an annual Statement of Assurance on the reliability of the Community’s accounts and the legality and regularity of the underlying transactions.
The Court is made up of one member from each Member State; these members are supported by some 760 staff.
Further information
Financial Management in the European Union
Executive Summary
European Court of Auditors
Annual Report of the Court of Auditors concerning the financial year 2005
European Anti-Fraud Office (OLAF)
Related article: Financial Management of EU Funds
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