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EU Trend Report 2016

Developments in the financial management of

the European Union

FIU, Alm.del - 2015-16 - Bilag 93: Materiale fra temamøde 19/4-16 om EU’s budget og regnskaber: Samspillet mellem Folketinget og EU’s kontrolorganer

EU Trend Report 2016

Developments in the financial management of

the European Union

Original title

EU-trendrapport 2016; Ontwikkelingen in het financieel management van de Europese Unie.

Den Haag: Algemene

Rekenkamer.

The original report was adopted on 25 January 2016 and presented to the Dutch House of Representatives on

27 January 2016.

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Contents

Executive summary

Purpose and structure

Conclusions and recommendations part

Main points part

Response of the government and the Court of Audit's afterword

PART 1

EU: TRENDS IN FINANCIAL MANAGEMENT

Financial management and regularity

1.1

The European Commissions's accountability documents

1.1.1

European Commission's activity reports and Synthesis Report

1.1.2

olaf

report on irregularities and fraud

1.2

European Court of Auditors' audit report

1.3

Accountability by the member states

1.3.1

Member states' accountability in annual summaries

1.3.2

Member states' accountability in national declarations

Effectiveness and efficiency

2.1

Reports issued by the European Commission

2.1.1

The Commission's activity reports

2.1.2

The European Commission's evaluation report

2.2

The European Court of Auditors' efficiency reports

2.3

Efficiency reports issued by supreme audit institutions

Conclusions and recommendations from part

3.1

Conclusions

3.2

Recommendations

PART 2

DISCUSSION

The importance of recognising the added value of the

Bibliography

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EU TREND REPORT 2016

Executive summary

Purpose and structure

This is the fourteenth annual

Trend Report to be published by the Netherlands

Court of Audit. It provides an insight into the management of

funds in the

European Union (eu) as a whole, in the

member states and in the Netherlands.

Financial management is an important factor in the Minister of Finance’s decision to

discharge the European Commission for its implementation of the

budget. The

Netherlands decides on the discharge every spring following a debate in the House of

Representatives. Our report is intended to help the House conduct a well-informed

debate with the Minister. Our position is that the citizens of the

have a right to

expect

funds to be spent in their own country and elsewhere so as to achieve the

intended outcomes (effectively), with the optimal use of resources (efficiently) and in

accordance with the rules (regularly). We also believe that

citizens have a right to

expect the effectiveness, efficiency and regularity of expenditure to be completely

transparent.

The 2016

Trend Report consists of two parts. Part I describes the current state of

financial management in the

eu.

We look at what is known about the regularity,

effectiveness and efficiency of expenditure both

eu-wide

and in the individual member

states. In part

ii,

we depart from previous editions of the

Trend Report. This is due

in part to the special circumstance that this report will be issued during the

Netherlands’ presidency of the

from 1 January to 30 June 2016. We consider it in the

form of a reflection on developments that are currently taking place in

financial

management. To do so, we draw on our previous

Trend Reports.

Conclusions and recommendations part I

Each year we examine various

accountability documents and audit reports issued

by the European Commission, the European Court of Auditors and the

member

states to determine whether

funds have been spent regularly, effectively and

efficiently.

This year, we concluded that the accountability documents still provide only limited

insight into the regularity of the use of

funds in the member states. A lot of money

is at stake: the

eu’s

annual budget totals nearly € 144 billion and 80% of it is spent in

the member states. The member states share responsibility for the proper

management and correct expenditure of these funds.

But only three of the 28 member

states (one being the Netherlands) are prepared to publish accounts of how

funds

are spent within their national borders and to accept political responsibility for the

expenditure. The other member states restrict themselves to an annual summary of the

controls they have performed of the regularity of the expenditure of funds received

from Brussels. All member states are required to prepare such annual summaries but

they are not made public and they are not signed at political level (i.e. by a minister).

The fact that for decades the European Court of Auditors has failed to issue a positive

Statement of Assurance on the regularity of the use of the

budget underlines the

urgency of preparing full and transparent accountability documents at member state

level.

The funds are said to be

‘under shared management’.

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Insight into the efficiency and effectiveness of the use of

funds is also open to

improvement. We again conclude that the accountability documents provide some

insight into the performance (outputs) of

funding in the member states but little is

known about the effects (outcomes). This information is essential for a full

understanding of what

funds deliver.

In the light of these conclusions we recommend that the Dutch government continue

to urge other member states to publish documents to account for their use of

funds

and accept political responsibility for their expenditure, as the Netherlands does. In

the meantime, the government should encourage other member states to publish at

least the compulsory annual summaries of their controls of expenditure. As from 2016,

they could also publish the associated management declarations on the regularity of

expenditure declared to the European Commission.

Main points part

As indicated above, the second part of this report considers the Netherlands’

presidency of the

in the first half of 2016. We have taken the opportunity to

consider a number of issues that our

Trend Reports have repeatedly raised in recent

years. We discuss the problems underlying the European Court of Auditors’ failure

over many years to express a positive Statement of Assurance on the regularity of

expenditure. And we take a closer look at the results achieved by

projects.

To date, audits of

expenditure and

programmes have focused on their

compliance with the rules. Little attention has been paid to whether the funds have had

their intended effect and whether the available budget has been spent efficiently. In our

opinion transparency regarding the social effects of

programmes is essential if

citizens are to know

programmes achieve.

The new European Commission that took office in 2014 under the presidency of Jean-

Claude Juncker has given high priority to the performance of the

eu.

It aims to do

more with less money and to simplify the rules where possible. We think the member

states should seize this opportunity to bring about tangible improvements. It is

important that the initiatives bear fruit. A fundamental revision of the budgeting

system could help make the recurrent problems a thing of the past. This would require

not only good ideas and intentions but also decisive and consistent narratives and

actions to strengthen the

eu’s

credibility.

Response of the government and the Court of Audit’s afterword

Response of the government

The government responded to our report on 18 January 2016. It wrote that our

recommendation to continue urging member states to publish accounts of their use of

funds supported its policy. The government noted that the

Financial Regulation

requires the authorities in the member states to prepare a number of new annual

accountability documents in the new 2014-2020 programming period. These

documents are the management declaration on the accounts, a detailed annual

summary containing information on the error rate in each fund and on the control

systems, and an opinion by an independent audit body.

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EU TREND REPORT 2016

If the European Commission were in turn to report transparently on these

accountability documents each year and if it considered the reliability of their figures

and the functioning of the supreme audit institutions in the member states, the

government believes this would provide an insight into areas with persistent high error

rates. The government thinks the European Commission is not unwilling to take this

approach but the member states must agree to the publication of such documents. To

date, most member states have shown little willingness to do so.

Court of Audit’s afterword

We note that the government agrees with us that the

member states hold the key to

greater transparency on the regularity of the use of

funds. The same is also largely

true of the insight into the effectiveness and efficiency of the use of

funds. As we

argue in part

ii,

these are factors that underpin public support for the

eu.

We will

follow the government’s efforts to bring about the desired improvements with interest,

both during and after the Netherlands’ presidency.

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European Union: a project of 28 countries

The European Union is currently made up of 28 countries. The Union was initially

created as an economic project under the name European Coal and Steel Union by a

small group of countries shortly after the Second World War. It has grown over the

years into an organisation that is involved in a wide range of policy areas.

Democratic decision-making

Everything the

does is based on treaties that are democratically adopted by all

member states. The most common form of decision-making in the

is the

co-decision procedure; the directly elected European Parliament approves proposed

legislation with the Council of Ministers, in which the governments of all 28 member

states are represented.

Laws and rules

The

can take various types of decision. Some are binding, others are not. Some

apply in all member states, others in just a few.

Not binding

Recommendation

A proposal by an EU institution

to all member states or to one

or more named member states

to adopt a particular policy line.

Does not create legal obliga-

tions.

Guidance

A decision taken by heads of

state or government in the

European Council that sets out

the broad lines of a given EU

policy field.

Communication

A non-binding document

issued by the European

Commission concerning, for

example, a policy evaluation,

an explanation of an activity

programme or a discussion

piece for new policy.

Advice

An opinion given by an EU

institution to one of more

named member states, usually

in response to an objection or

as part of a particular

procedure. An advice does not

create legal obligations.

Binding

Regulation

A decision by the EU that is

binding in its entirety and

directly applicable in all

member states. Member states

themselves do not need to take

their own measures.

Directive

A decision by the EU that is

binding as to the results to be

achieved in all member states.

Member states are free to

choose the form and methods

of the measure they take.

Decision

A decision by the EU of direct

application in particular cases

(to persons, organisations,

businesses or member states).

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EU TREND REPORT 2016

EU institutions

This report looks at the following

institutions:

Brussels

European Parliament

Legislator and controller

751 members of parliament

The

European Parliament

represents the

citizens of the EU. It has 751 members, who

are elected every five years (the next election

will be in May 2018). It shares legislative

powers with the Council. It can adopt, amend

and reject European laws (regulations and

directives). The Parliament decides on the EU

budget together with the Council.

Luxembourg

Auditor

European Court of Auditors

The

European Court of Auditors’

main duty is

to audit the implementation of the EU budget. It

investigates the ‘legality and regularity’ of the EU’s

revenues (the contributions the EU receives from

the member states) and the EU’s expenditures

(chiefly the grants the EU awards to the member

states). The European Court of Auditors also

audits the financial management of the European

Commission and the other EU institutions.

European Commission

Executive body

28 commissioners

The

European Commission

is made up of 28

commissioners, one from each member state.

It proposes new laws and rules and checks

that the member states observe them. In the

same way that a national government has

ministries, the Commission consists of

Directorates-General (DGs) and services that

are responsible for specific

policy fields.

Member states

European Council

Impetus setter

Heads of state or government of all

28 member states

The

European Council

is made up of the heads

of state or government of all 28 member states.

It provides the necessary impetus for the

development of the Union and sets the general

political policy lines and priorities. The European

Council does not exercise legislative duties.

Legislator

Council of Ministers

Ministers of all 28 member states

The

Council of Ministers

(or

‘Council’

for

short) exercises legislative and budgetary duties

together with the European Parliament. It must

approve all legislation proposed by the Commis-

sion and every budget proposed for the EU.

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EU TREND REPORT 2016

Part I

EU: trends in financial

management

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revenue and expenditure

Shared funding, shared expenditure

The

is financed by means of annual contributions to its budget by the member

states. The budget may not run a surplus or a deficit. All expenditure must be covered

by revenue and budgeted funds that are not spent must be returned to the member

states, either by deducting them from future contributions or by refunding them on a

pro rata basis.

The

budget for 2014 totalled nearly € 144 billion. To put this into perspective, it

was equal to about 1% of the member states’ aggregate gross national income (gni).

Three types of contribution

To fund the

eu’s

expenditure, the member states make a contribution calculated

separately for each country. These contributions to the

budget are known as the

eu´s

own resources. They consist of:

• traditional own resources: 75% of sugar levies and customs duties collected by the

member states;

•

vat-based

own resources: a set percentage (with a ceiling) of the individual

member states’

vat

revenue or level of consumption, applied on a uniform basis

across the

eu;

• remittances based on the member states’ gross national income (gni).

Shared management

About 80% of the funds recognised in the

budget every year are managed jointly by

the European Commission and the member states. These funds are said to be ‘under

shared management’. They include the structural funds, for example, which are

applied to strengthen the economic, social and territorial cohesion of the

eu.

This report looks principally at the use of funds under shared management. The

member states have a direct responsibility for the correct (regular, efficient and

effective) use of these funds.

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EU TREND REPORT 2016

Revenue

2014

Expenditure

2014

€143.9

billion

GNI-based

99.1 billion

contribution

€142.5

billion

Surplus

€1.4

billion

67.7 billion

Sustainable growth

56.6 billion

Natural resources

Traditional

16.4 billion

own resources

VAT-based

17.7 billion

resources

8.8 billion

Other revenue

10.8 billion

(including surpluses

and settlements)

Administration

The EU as a Global Partner

Citizenship, Freedom,

Security and Justice

7.2 billion

Special instruments

0.5 billion

0.03 billion

Compensation

1.7 billion

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Financial management and regularity

This chapter considers the way in which the member states’ contributions to the

are managed and spent.

funds must be spent in accordance with the regulations.

If not, there is said to be an irregularity.

The European Commission publishes a series of documents each year to account for

its financial management and its control of the regularity of expenditure. The

European Court of Auditors carries out an independent audit and expresses an opinion

in an annual report. The individual member states also prepare annual reports on their

expenditure of

funds. These accountability and audit documents (see figure above)

are considered in this chapter. We look at the subject matter and contents of the

following reports issued in 2015: the European Commission’s accountability

documents (section 1.1), the European Court of Auditors’ audit report (section 1.2) and

national declarations (section 1.3).

1.1

1.1.1

The European Commission’s accountability documents

European Commission’s activity reports and Synthesis Report

The European Commission’s DGs and services

issue annual activity reports in which

they state that the reports give a true and accurate view and that there is reasonable

assurance that the expenditure from the DG’s budget was legal and regular. The

Director-General can make reservations in the activity report if there is uncertainty

about the reliability of the information provided. A reservation is intended to point out

shortcomings or problems that may prevent the Director-General issuing a full

declaration of assurance. A reservation can be made if, for example, there are doubts

about the regularity of expenditure.

The Director-General should state how many reservations have been made, how much

money is involved, how the shortcomings or problems have arisen (for example the

underlying internal or external risks) and the corrective measures taken to address

them.

In 2014 all Directors-General declared in their activity reports that they had reasonable

assurance that the funds they managed had been used correctly, that the principles of

sound financial management had been observed and that the control procedures

provided the necessary assurances on the legality and regularity of the underlying

financial transactions.

The annual activity reports for 2014 gave more prominence to the so-called

performance framework. The new European Commission attaches a great deal of

importance in these policy performance reports to the added value its activities

generate for

citizens. With a view to the coherence and comparability of all DGs,

measures have been taken to improve the reporting of policy results and programme

management. Significant progress has therefore been made.

For the sake of convenience

we refer in the rest of this

report only to DGs.

References to DGs include

the services.

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Accountability and control: who does what

European Commission

The European Commission prepares annual accountability documents and

control reports.

The Commission’s

policy DGs issue

activity reports.

The Commission issues an overarching

Synthesis Report on the activity reports

and an evaluation report on the policy

conducted.

OLAF, the anti-fraud office,

publishes a report on

irregularities and fraud in

the member states.

All member states:

annual summary

All EU member states prepare

compulsory annual summaries

of their audits (and audit findings)

of the regularity of EU funding flows.

Activity

reports

Synthesis

Report

Evaluation

report

Fraud

report

Annual

summary

European Court of Auditors

The European Court of Auditors in

Luxembourg publishes an audit report

every year on the regularity of the EU’s

revenue and expenditure.

Three member states:

national declaration

Sweden

Denmark

Annual

Summary

Netherlands

Brussels

Luxembourg

Only three member states (the

Netherlands, Denmark and Sweden)

voluntarily published a national

declaration in 2014 in addition to

their annual summaries to account

for their use of the EU funds they

received.

National

declaration

Increase in number of reservations in 2014

The Directors-General made more reservations regarding the reliability of the

information provided on the use of their budgets in respect of 2014 than in respect of

2013. However, the financial value of the reservations was lower. A total of 25

reservations were made for 2014, four more than for the previous year.

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Apart from the four new reservations that were made,

one was withdrawn.

It goes

without saying that the more reservations the DGs make, the more uncertainty there is

about the regularity of their expenditure.

Number of DGs’ reservations increases again

In 2014:

new reservations

existing reservations

reservation withdrawn

reservations relating to FP7 (Seventh

Framework Programme for Research)

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

Source: European Commission, Synthesis Reports, 2005-2014

These reservations related

to the common foreign and

security policy.

The Director-General for

Health and Consumer

Protection (SANCO)

withdrew the reservation he

had made.

The activity reports issued

by the policy DGs

Agriculture and Rural

Development; Regional and

Urban Policy; Employment,

Social Affairs and Inclusion;

Maritime Affairs and

Fisheries; Home Affairs;

Justice; Education and

Culture; Environment;

Mobility and Transport;

Energy; Research and

Innovation; and Taxation

and Customs Union. The

selection consists chiefly of

the shared management

DGs and DGs of major

financial importance. In

total, 33 activity reports

were issued in 2014.

Reservations were made in 2014 on all major areas of expenditure (agriculture € 1,447

million, structural funds and cohesion € 418 million, external aid € 216 million and

research € 200 million). The amount at risk after adjustment for recoveries and

financial corrections already made is estimated at € 2.3 billion (1.6% of the overall

budget); in the previous year € 2.4 billion had been at risk (also 1.6%).

As in previous years, the 12 activity reports we studied in detail

present the

reservations and detailed explanatory notes and quantify the amounts concerned. The

reservations related not only to shortcomings detected in financial transactions but

often also to shortcomings in management and control systems. The shortcomings

themselves were due to the complexity of

rules on the eligibility of expenditure.

Number of ‘reputational’ reservations unchanged in 2014

If a Director-General makes a ‘reputational’ reservation in a declaration of assurance,

the underlying shortcoming in the design or functioning of the internal controls or

financial management tarnishes the Commission’s reputation.

Two of the Directors-General of the 12 DGs we studied made reputational reservations

in their activity reports for 2014. In the previous year DGs Regional Policy and

Employment had also made reputational reservations.

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Nature of reservations and financial value

Budget heading

Nature of

reservation

financial

reputational

Financial risk

(in millions

of euros)

Sustainable growth

Regional policy

224

–

Employment, Social

Affairs and Inclusion

Mobility and Transport

Energy

Research and Innovation

Natural Resources

Agriculture and

Rural Development

169

–

111

832

533

Maritime Affairs

and Fisheries

Citizenship, Freedom,

Security and Justice

Total number of reservations

in policy DGs audited

–

1,981

Other reservations

Total number of reservations

2,285

* The most important new reservation in 2014 related to Greece; the error rate in four operational programmes of the

European Social Fund (ESF) is provisionally estimated at 5%. All Greece’s programmes are included in the list of

reservations and for caution’s sake no payments will be made until the European Court of Auditors and the Greek

authorities complete their current discussions.

The figure above shows that the reputational reservations for 2014 were made by:

• DG Regional Policy, regarding the management and control systems in place for

the European Regional Development Fund (erdf) and the Cohesion Fund

(transport sector) in four member states (Italy, Ireland, Romania and Bulgaria) for

the period 2000-2006. These reservations were the outcome of (a) significant

corrections that were necessary after the closure of certain programmes, and (b)

the suspicion of fraud in several projects in one member state.

• DG Employment, Social Affairs and Inclusion, regarding the management and

control systems in place for the European Social Fund (esf) in seven ongoing

programmes in three member states (France, Italy and Spain) in the period 2000-

2006. These reservations were the outcome of shortcomings in systems that could

affect the regularity of payments.

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No change in reports on results of controls in member states

The five policy DGs that are responsible for the funds the Commission manages

together with the member states (DG Agriculture and Rural Development, DG

Regional Policy, DG Employment, Social Affairs and Inclusion, DG Maritime Affairs

and Fisheries and DG Home Affairs) provide detailed information in their annual

activity reports for 2014 on the results of controls in the member states. The

information is substantively of the same quality and quantity as that in the activity

reports for 2013.

The other seven policy DGs report only the nature of the controls

and, in some cases, the member states in which they were carried out. These reports

provide little insight into the results of the controls.

The improved structure of

all activity reports in 2013

strengthened the compara-

bility of the repots, in part

through the introduction of

a compulsory section

entitled Key conclusions on

resource management and

internal control

effectiveness.

In accordance with article

99, paragraph 5 of the

revised Financial Regulation,

a summary of the internal

auditor’s work will be sent

to the discharge authority.

See appendix 1 of the

Annex to the Synthesis

Report, ‘Reporting on Policy

Achievements: selection of

key performance indicators’.

‘Irregularity’ is the EU term

for what in the Netherlands

is known as ‘unlawful’. For

the purposes of this report,

we consider the two terms

to be synonymous.

These estimates are based

on the average amount of

corrections since 2009.

According to the European

Commission, this is the best

available indication of the

corrective capacity of ex

post control.

OLAF stands for Office

européen de lutte

antifraude.

Synthesis Report: final accountability document

The European Commission compiles an annual Synthesis Report based on the DGs’

activity reports. As in the previous year, the Synthesis Report for 2014 states that the

Commission’s internal audit service (ias) expressed an opinion on the financial

management on which the Directors-General based their activity reports.

The

opinion, which is not made public, notes that the Commission’s management, risk

and internal controls on the whole provided reasonable assurance on the achievement

of financial goals. The

ias

drew attention to the new legislation in the multiannual

financial framework 2014-2020. The rules on what is and what is not eligible for

funding remain complex. This could lead to differences of interpretation among the

member states and a higher risk of errors, according to the

ias.

In its Synthesis Report for 2014 the Commission presented, for the first time, a

summary of the key performance indicators to demonstrate the delivery of its goals.

The report states, for example, that employment in the agriculture sector has increased

since 2012 and is therefore on target. According to the Commission the scores on most

of the indicators show that it is well on track to reach its multiannual objectives.

The Synthesis Report also contains, again for the first time, the best estimate of the

total amount at risk together with an estimate of future corrections. The Commission

estimates the overall amount at risk in 2014 at between € 3.7 billion and € 5 billion.

But not all risks result in irregularities

that have to be corrected. Based on past

experience the Commission estimates that the controls it will implement in successive

years will identify and correct errors for a total amount of approximately € 2.7 billion.

This is equal to 1.9% of the

eu’s

total expenditure in 2014 of € 142.5 billion.

1.1.2

OLAF report on irregularities and fraud

The member states sometimes make mistakes implementing

rules when they

receive and spend

funds. These mistakes are known as irregularities. Sometimes

member states break the rules intentionally. This is known as fraud. The member

states must report all irregularities in excess of € 10,000 to the Commission and take

measures to recover payments made in mistake.

olaf,

the

anti-fraud office, compiles annual summaries for the Commission of

the number of irregularities reported to it. The summaries do not provide a full and

reliable picture, however, because the member states do not use the same reporting

procedures. There are differences in, for example, the definitions (such as ‘suspicion

of fraud’) used in national legislation and the members states’ reporting of criminal

prosecutions.

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Increase in irregularities

Across the

as a whole, both the number of irregularities reported and their

financial value were higher in 2014 than in 2013; the number increased by 4.4% and

the value by 50%.

Irregularities by budget heading

Budget headings

(former budget headings)

Irregularities

2013

2014

5,185

3,937

Financial value

2013

388.4

277.9

(in millions of euros)

2014

978.6

306.1

Own resources

Natural resources

(common agricultural

policy)

Sustainable growth

(structural policy)

Citizenship, Freedom,

Security and Justice;

and EU as a Global Partner

(direct policy)

Compensation for new

members (pre-accession

policy)

4,777

3,535

4,993

2,245

5,283

1,897

1,333.7

81.9

1,835.5

100.8

229

171

62.2

24.7

Total

15,779

16,473

2,144.1

3,244.7

Figures are taken from the reports on the protection of the EU’s financial interests for 2013 and 2014 and related annexes;

COM(2014)474, section 2, and COM(2015) 386, section 4.

The 16,473 irregularities reported by the member states in 2014 had a total financial

value of € 3.24 billion (2013: € 2.14 billion).

Five member states reported two-thirds

of this total: the Czech Republic, Slovakia, Poland, Spain and the United Kingdom.

Irregularities were reported in agricultural funding (including the fisheries funds),

structural funding and the member states’ remittance of import levies and customs

duties (i.e. traditional own resources). The United Kingdom reported the highest

amount of irregularities in traditional own resources: € 572.9 million, equal to nearly

three-quarters of the total irregularities in remittances of € 978.6 million.

The member states must take all measures necessary to recover payments made in

error. If a member state reports an undue payment on time and takes appropriate

action, the Commission will not impose a financial correction.

Of this total, € 2.27 billion

relates to expenditure and

the remainder to receipts

from the EU. The reported

irregularities represent 1.8%

of the payments made in

the member states.

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The corrections and recoveries proposed by the Commission increased from € 3,436

million in 2013 to € 4,728 million in 2014. The financial value of the undue payments

actually recovered, however, fell by 11%. Corrections and recoveries in 2013 had

amounted to € 3,334 million but the amount in 2014 was € 2,980 million, relating

chiefly to Cohesion policy (-25%) and, within it, the

esf

(-67%).

Financial corrections and recoveries 2013-2014 by EU budget heading

Confirmed and decided (in millions of euros) Implemented (in millions of euros)

Budget heading

Agricultural policy

EAGF

EAFRD

Cohesion policy

ERDF

Cohesion Fund

ESF

Other (incl. EFF, FIFG, EAGGF-Guidance)

Internal policy

External policy

Administration

Total 2014

Total 2013

Variation 2014/2013

Own resources total 2014

Own resources total 2013

Variation 2014/2013

958

425

-125%

958

425

-125%

229

287

-20%

24%

67%

3,890

2,495

56%

Financial

corrections

1,869

1,649

2,016

1,330

292

342

293

127

838

941

-11%

Recoveries

378

213

Total

2,247

1,862

2,051

1330

292

343

298

127

4,728

3,436

38%

-25%

37%

-17%

38%

2,224

2,472

-9%

Variation

Financial

2014/2013 corrections

54%

74%

38%

293%

33%

-61%

882

796

1,357

823

191

289

274

108

736

862

-15%

Recoveries

317

150

Total

1,199

946

1,389

824

191

290

279

108

2,980

3,334

-11%

-30%

-16%

-17%

-11%

Variation

2014/2013

21%

48%

-25%

32%

-31%

-67%

Source: Report on the protection of the European Union’s financial interests 2014, COM(2015) 386, p. 29.

The own resources recovered in 2014 amounted to € 958 million, of which the member

states recovered € 229 million in cases detected before the end of the year. The

recovery rate was thus 24%.

Irregularities chiefly in cohesion policy

More irregularities were reported in agricultural policy and cohesion policy in 2014

than in 2013. The financial value of these irregularities was also higher than in 2013.

Cohesion policy still accounts for the largest proportion of expenditure. The funds the

member states receive to implement the policy are applied to strengthen the economies

of the least developed members of the Union. The projects funded (e.g. the

construction of roads and railways) help the Union ‘stick together’.

The threshold to report

irregularities in the

structural funds, including

the Cohesion Fund, was

raised from € 4,000 to

€ 10,000 in 2006. The

threshold for agricultural

funds was raised to the

same level a year later.

Any consideration of the trend in these figures (particularly regarding the value of the

irregularities in cohesion policy) should bear in mind that the number of member

states increased during the period concerned and the threshold to report irregularities

was raised.

Increase in suspected fraud cases

Fraud is an irregularity committed intentionally, for example by knowingly using or

submitting false, incorrect or incomplete declarations or documents, non-disclosure

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of information contrary to the rules or the misapplication of funds for purposes other

than those for which they were originally intended.

The number of suspected fraud cases reported to

olaf

by the member states in 2014

increased from 1,294 to 1,417. This is the highest number of new cases reported to

olaf

since it was established. The information reported related chiefly to suspected

fraud in the structural funds. Of the 549 cases reported, 127 relate to fraud in grants

awarded from the European Social Fund (esf).

In response to the reports it received in 2014,

olaf

opened 234 fraud investigations,

increasing the number of ongoing cases at the end of 2014 to 474. Broken down by

policy field, the new cases unsurprisingly relate largely to the structural funds. There

was a modest increase in structural funds cases from 149 in 2013 to 153 in 2014. The

number of fraud cases investigated by

olaf

in agricultural policy declined from 82 to

60. In a period of just over five years,

olaf

has made recommendations to member

states relating to outstanding recoverables worth € 901 million that must be returned

to the

budget.

olaf

has increasingly been working with the national Anti-Fraud Coordination

Services (AFCOs) that all member states must establish under the new

olaf

Regulation. Twenty-three member states had set up an

afcos

by mid-2014,

and all of

them by the end of the year. The

afcos

work proactively with

olaf

and share

operational and other information to strengthen the fight against fraud.

1.2

European Court of Auditors’ audit report

The European Court of Auditors’ main task is to audit the implementation of the

budget. It examines the regularity of both the

eu’s

revenues (the contributions

received from the member states) and its expenditures (most of which are grants

awarded to the member states). The European Court of Auditors also audits the

financial management of the European Commission and the other

institutions.

It presents its findings for the previous financial year in its annual report.

The findings play an important role in the European Parliament’s decision to

discharge the Commission or not for its implementation of the budget. The European

Court of Auditors does not express an opinion on the regularity of expenditure in

individual member states. It considers only the management and control systems in

place for

ei]u

funds and expresses an opinion on their functioning.

Again no positive Statement of Assurance on

expenditure

Although the European Parliament has granted discharge to the European Commission

for its implementation of the

budget every year since 1998, the European Court of

Auditors has never expressed an unqualified opinion on the regularity of expenditure

from the budget. Each year, its audits find too many errors. An error occurs if, for

example, the costs declared to carry out an

project are ineligible but are

nonetheless reimbursed. Apart from the payment of ineligible costs, the most frequent

serious errors relate to contract award procedures and incorrect declarations of field

sizes by farmers.

The Netherlands has

designated the Customs

Information Centre (DIC),

part of the Rotterdam

Rijnmond regional customs

office, as the AFCOS for

customs matters and for

carrying out checks for the

Commission under

Regulation (EC) 2185/96,

which applies to all EU

activities to combat fraud

with EU funds. The DIC will

deal with all judicial, legal

and policy matters.

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General error rate found by the European Court of Auditors

2006-2014

Most likely error rate

10%

Upper error limit

Lower

error limit

5.4%

4.4%

3.3%

2006

2007

2008

2009

2010

2011

2012

2013

2014

Minimal decline in error rate in expenditure by the European Commission

The European Court of Auditors was again unable to issue a positive Statement of

Assurance (Déclaration d’Assurance, or

das)

on the Commission’s implementation of

the

budget in 2014 (European Court of Auditors, 2015).

The European Court of Auditors states in its annual report for 2014 that the most likely

error rate for the Commission’s budget as a whole was 4.4%. Given the total

expenditure for the year of nearly € 142.5 billion, material errors were detected to an

amount of nearly € 6.3 billion. In its 2013 annual report the European Court of

Auditors had initially reported an estimated error rate of 4.7%. In 2014, however, it

refined its method to calculate the estimated error rate and restated the most likely

error rate for 2013. The new method takes account of the quantification of serious

errors in public contracting. This resulted in an estimated error rate of 4.5% for 2013.

The European Court of Auditors classifies an error as ‘material’ if its quantifiable

financial value is equal to 2% or more of total expenditure. This was also the case

again in 2014; the errors detected in all areas of expenditure (with the exception of

‘administration’) exceeded the materiality threshold of 2%. The two most error

sensitive areas of expenditure were regional and urban policy, with an error rate of

6.1%, and rural development, environment, climate action and fisheries, with an error

rate of 6.2%. No material errors were found in revenues.

For the eighth year in succession, the European Court of Auditors gave a clean opinion

on the reliability of the accounts. It concluded that the accounts fairly presented the

financial position at the end of 2014 and the performance during the 2014 financial

year.

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1.3

1.3.1

Accountability by the member states

Member states’ accountability in annual summaries

Since 2008 every member state has had to submit an annual summary to the

Commission. The annual summary presents the results of national audits completed

in the previous financial year and the results of controls of

projects in the member

state.

The annual summaries must be submitted no later than 15 February of the

following financial year.

In accordance with the Commission’s guidance note (whose use is not compulsory),

the annual summaries for each structural fund programme include an audit opinion,

a calculation of any shortcomings and irregularities (including any corrective measures

taken or planned) and the error rate detected by audits of each project. Separate annual

summaries are prepared for agricultural funds and migration funds. A partial

exemption from this rule is available for member states that have only one paying

agency for agricultural funds; they do not need to submit separate summaries of

controls of agricultural funds.

Changes in the new Financial Regulation

The EU’s new Financial Regulation adopted in October 2012 defines more precisely (in article 59,

paragraph 5b) what control information the member states must submit to the European

Commission each year. They must provide an annual summary of the final audit reports and of the

controls they carried out, including an analysis of the nature and extent of errors and weaknesses

identified in systems, as well as corrective actions taken or planned. The new Financial Regulation

also requires the annual summaries to be accompanied by the opinion of an independent audit

body. The auditor’s opinion should establish whether the transactions underlying the annual

Checks are made of the

member states’

management and use of the

funds they receive to

implement EU agricultural,

structural and migration

policies.

The audit opinion can be

an unqualified opinion,

a qualified opinion, an

adverse opinion or a

disclaimer of opinion.

EFF: European Fisheries

Fund.

EAGF: European Agricultural

Guarantee Fund. EAFRD:

European Agricultural Fund

for Rural Development.

Commission Regulation No

885/2006 of 21 June 2006;

article 7(5).

summary are legal and regular. The member states must submit these documents as from 2016.

(Regulation (EU) No 1303/2013 of the European Parliament and the Council of 17 December 2013;

article 138).

The annual summaries are issued by the authorised bodies in each member state and

sent to the relevant DG in the European Commission. In the Netherlands, the annual

summary for the

erdf

and the

eff

for 2014 was compiled by the Ministry of

Economic Affairs (ez), that for the

esf

by the Ministry of Social Affairs and

Employment (szw) and that for the

migration funds by the Ministry of Security and

Justice (V&J). The Netherlands is no longer obliged to prepare an annual summary for

the agricultural funds (eagf and

eafrd

) as it has had just one paying agency for

them since 16 October 2013.

It has accordingly not submitted an annual summary for

the agricultural funds since then.

Annual summaries 2014: the Netherlands

The audit opinions presented in the 2014 annual summaries on the Dutch programmes

funded from the

erdf

and

esf

structural funds and the

eff

fisheries fund are shown

in the figure hereafter. The corrected net error rate is also shown for each programme.

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Audit opinions in Dutch annual summaries 2014: ERDF, ESF and EFF

Audit opinion

= unqualified

= reservation

Structural funds

Fisheries fund

ERDF

ERDF North

ERDF West

ERDF East

ERDF South

ESF

EFF

0.31 – 1.06%

1.99%

10.40%

The error rate at all four

ERDF managing

authorities was below

the tolerable rate of 2%.

Uncertainties amounting to

more than

€5.7

million were

not included in the error rate

for the EFF.

Unlike the annual summaries for the funds considered above, the annual summaries

for the four migration funds disclose only the total amount of eligible costs audited

and the amount in error, not the error rate per fund. The four migration funds are the

European Integration Fund (eif), the European Return Fund (rf), the European

Refugee Fund (erf) and the European External Borders Fund (ebf). Eleven of the

projects financed from these funds were audited in 2014.

The annual audit reports on the migration funds use the European Commission’s

calculation method to quantify the error rate. The error rate in each of the four funds

was less than 2%.

Project audits and error rate per migration fund

European

Integration Fund

(EIF)

Number of

project audits

Error rate

1.26%

European

Return Fund

(RF)

0.08%

European

Refugee Fund

(ERF)

0.20%

European

External Borders Fund

(EBF)

0.04%

The error rate in all funds was less than the tolerable rate of 2%.

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The Dutch audit authority reviewed the management and control systems in the period

between November 2013 and the end of June 2014 and found that the minimum

requirements were satisfied.

Annual summaries 2014:

eu-wide

To date, the

member states’ annual summaries for 2014 have not been published.

We think this is a missed opportunity because their publication could improve the

insight available into the implementation of

programmes.

There is nothing to prevent the member states publishing their annual summaries

voluntarily. The European Commission has indicated that the member states are free

to decide what accountability documents they release. The member states themselves

therefore decide whether they want to contribute to the transparency of the

funds

they spend (European Commission, 2014c).

The activity reports published by the European Commission’s DGs disclose only

whether the annual summaries satisfy the minimum requirements. The DGs’

assessment of the member states’ 2014 annual summaries found that the vast majority

of them did. In contrast to previous years, DG Agriculture and Rural Development’s

activity report did not include any information on the annual summaries.

1.3.2

Member states’ accountability in national declarations

A member state’s government issues a national declaration to account publicly for its

management and use of

funds in the previous year. It is a public document that

reveals where there are problems in the management of EU funds and where errors

occur in their use. In it, the government assumes political responsibility for the funds’

management and use. If, for example, a large sum is spent irregularly in a member

state in a particular year, the responsible ministers or local or provincial management

bodies can be held to account and corrective measures can be taken to improve the

situation. The political and management accountability inherent in a national

declaration is an improvement on the other accountability documents that the member

states submit to the Commission. Unfortunately, few member states currently publish

national declarations. Only three did so in 2014: Denmark, Sweden and the

Netherlands. To date, the member states have not been obliged to publish national

declarations.

Our opinion on the Dutch national declaration for 2015: positive but…

The Dutch Minister of Finance issued the Netherlands ninth national declaration on

behalf of the government in 2015. The Court of Audit has expressed an independent

opinion on all nine of the national declarations.

In our report on the 2015 national declaration we stated that it provides a good view of

the management and use of

funds in the Netherlands. Nevertheless, we drew

attention to aspects of the management that are open to improvement (Netherlands

Court of Audit, 2015). We also noted that the national declaration should contain

information on the efficiency and effectiveness of

funding. Do

funds actually

achieve the intended goals? And if so, do they achieve them efficiently or could the

same goals have been achieved with less money or in a different way?

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In the

eu’s

new programming period (2014-2020), Brussels is giving higher priority to

the achievement of results. The

eu’s

funding of projects will depend in part on their

contribution to the Europe 2020 targets set for each member state.

Information on

effectiveness and efficiency will therefore be an important aspect of accountability for

funding in the new programming period.

contributions

The European Commission awards

funds from its ‘own resources’, the money

member states contribute to the

budget. Summary information on the Dutch

contributions to the

is provided only in the Ministry of Foreign Affairs’ annual

report.

The Court of Audit believes the national declaration should include information on the

Netherlands’ contributions to the

and their management. This would produce

comprehensive accounts of both the amounts the Netherlands receives from the

(grants) and the amounts it contributes to it. One of the advantages of such

comprehensive accounts is that they would provide an insight into the system

underlying the additional contributions Brussels sometimes imposes on member

states. The Dutch parliament was ‘taken by surprise’ by such an additional

contribution in 2014. A comprehensive national declaration would have provided

parliament with more insight into the amount the Netherlands had to pay to the

and enabled it to hold a timely debate on additional contributions.

National declarations in other countries

The Swedish government published its fifth annual national declaration on the use of

EU funds under shared management in 2015. Since the Swedish declaration is

published as part of the central government’s annual report and the Swedish audit

institution audits the annual reports of all executive government bodies, it also

expresses an opinion, albeit indirectly, on the regularity of the use of

funds in

Sweden.

The Danish national declaration is a brief financial statement on

outgoings

(contributions) and EU receipts (grants) that is prepared by the Danish Minister of

Finance and included in the central government’s annual report. It is audited by the

Danish audit institution, Rigsrevisionen, which examines whether the statement gives

a true and fair view of EU outgoings and receipts and the regularity of the underlying

transactions. The opinion is presented in a thorough report that Rigsrevisionen

submits to the parliamentary public accounts committee, which adds administrative

conclusions to the report and, with the ministry, checks that the recommendations are

acted upon.

The United Kingdom used to issue a national declaration but has not done so since

2012.

En route to better accountability?

The other member states have not taken any concrete initiatives yet to voluntarily

render political account for their management and use of

funds.

In our opinion, a first step to improve accountability for

funds in the member

states would be to make the publication of national declarations compulsory. Article

The EU has set key targets in

five areas for 2020:

1. employment,

2. research, development

and innovation,

3. climate change and

energy

4. education, and

5. poverty and social

exclusion.

These Europe 2020 targets

have been translated into

national goals taking

account of the specific

situation and circumstances

in each member state.

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59 of the new Financial Regulation lays down that before 15 February of each year all

member states must submit not only annual summaries but also management

declarations providing assurance on the regularity of the expenditure declared to the

European Commission.

National declarations, however, have considerably more added value than annual

summaries and management declarations because (a) they contain an overarching

opinion on the regularity of funds flows (rather than on individual funds) so that it is

a more usable and accessible document, (b) political responsibility is assumed for the

opinion, and (c) national declarations, unlike annual summaries and management

declarations, are public documents that every

citizen and member of parliament

can read.

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2 Effectiveness and efficiency

The previous chapter asked whether the member states spent

funds in accordance

with the rules (regularly). This chapter asks two questions that are just as important to

citizens: did the use of those funds deliver the required outcomes and could those

outcomes have been delivered more efficiently (at lower cost). The first question is

concerned with the effectiveness of expenditure, the second with its efficiency.

This chapter looks at the various reports the European Commission, the European

Court of Auditors and the member states’ supreme audit institutions issue every year

on the effectiveness and efficiency of expenditure. It considers whether they provide an

insight into what EU funds actually achieve. Do they clarify whether and, if so, how

investments in the member states deliver the

eu’s

goals?

We again begin at

level by discussing the reports issued by the European

Commission (section 2.1) and by the European Court of Auditors (section 2.2). We

then look at the reports issued by the member states (section 2.3).

2.1

2.1.1

Reports issued by the European Commission

The Commission’s activity reports

Little information on the effectiveness of

policy

All the European Commission’s Directors-General must prepare an annual report on

the activities they perform in their policy fields. In the previous chapter, we discussed

the regularity information contained in the activity reports of 12 Directorates-General

responsible for implementing policy (policy DGs).

For the sake of convenience,

we refer to ‘efficiency

reports’, even if the reports

contain an opinion on the

effectiveness of

expenditure.

In its 2013 Synthesis

Report, the Commission

instructed the central

services to develop a more

tailor-made approach to

performance reporting in

the annual activity reports.

See European Commission,

Communication from the

Commission to the

European Parliament, the

Council and the Court of

Auditors, Synthesis of the

Commission’s management

achievements in 2013,

COM(2014) 342 final, of

11 June 2014, p. 9.

In each

Trend Report we study the activity reports of 12 policy DGs to determine

what information they present on the effectiveness of

policy in the member states.

We found that the 2014 activity reports (like those for previous years) provided some

information on the outputs in the member states but none on the outcomes of the

policies and funding programmes. Insight into the effectiveness of

policy in the

member states is therefore minimal.

Improvements in content, organisation and system

In their annual activity reports for 2014, the 12 policy DGs we studied set out: (a) the

general and specific goals of the policies implemented in the previous year, (b) the

indicators used to determine whether the intended outputs were delivered and whether

the policies delivered the intended outcomes (the output and impact indicators), and

that it was easy to interpret.

The content and organisation of the activity reports have improved over the years in

response to instructions from the Commission.

Improvements have also been made

in the information on outputs.

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The reports now contain a large amount of useful information every year on the DGs’

achievement of their goals and there has been a further streamlining of the output

evaluations. Previous output-related improvements had included examples of

measures to improve management efficiency and value for money, more detailed

output information from evaluations, studies, audits, assessments, etc., representative

examples to demonstrate the added value of

programmes and better coherence

between the management plans and the annual activity reports.

The compulsory inclusion of management conclusions on the achievement of policy

and operational goals also strengthens the coherence and clarity of the activity reports.

Their organisation has been harmonised to such an extent that unnecessary

differences between them have almost been eliminated and the reports’ presentation is

more uniform. The documents’ transparency has been further enhanced by the

inclusion of a summary for the non-specialised reader.

2.1.2

The European Commission’s evaluation report

The European Commission’s evaluation report provides the European Parliament and

the Council of Ministers with the information they need for the discharge procedure.

The discharge procedure

The discharge procedure is a procedure to approve the European Commission’s implementation of

the EU budget. If approved, the Commission is officially released from its responsibility for budget

implementation and cannot later be held to account for it. In brief the procedure is as follows.

The European Parliament checks the accounts on the basis of the European Court of Auditors’

annual report. The Council (consisting of representatives of the 28 member state governments)

gives a positive or negative recommendation on the discharge. If Parliament so wishes, it can ask

the Commission to provide further information on expenditure. Parliament then grants or

withholds discharge. If it refuses to grant discharge, the Commission is required to explain itself to

the next session of Parliament.

The discharge procedure used to concentrate on the legality and regularity of the

Commission’s implementation of the budget in the previous year. The focus was

extended in 2012 to cover the efficiency and effectiveness of policy as well. To this end,

a paragraph has been added to article 318 of the Treaty on the Functioning of the

European Union (tfeu) requiring the Commission to submit an evaluation report on

the execution of the budget based on the results achieved. The Commission submits

this annual report to the European Parliament and the Council to explain the delivery

of its policy goals, with emphasis being placed on the Union’s finances from the

perspective of the results achieved by the relevant programmes. The Commission has

so far published five evaluation reports.

Gradual improvement in information value of evaluation reports

There has been a gradual improvement in the quality of the evaluation report since the

first one was published in 2010. The report is published earlier in the year, for

example, so that the European Court of Auditors can consider it in its annual report.

The scope has also been widened over the years and recommendations for

improvement have also been introduced.

See, for example, our

EU Trend Report 2014.

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According to the European Commission, the further evolution of the evaluation report

neds to be seen in the context of the Commission’s continuing work on performance

across the entire budget cycle. At the request of the European Parliament, an inter-

institutional working group on performance-based budgeting will be set up. This

working group (consisting of members of the European Commission, the European

Parliament, the Council of Ministers and the European Court of Auditors) will improve

the

budget’s alignment with the intended results of

policy.

The fifth evaluation report - published in June 2015 - contains more information on the

delivery of the Europe 2020 targets

than the previous report. It also refers to concrete

programmes that have delivered results. According to the European Court of Auditors,

however, these examples are still too limited. The European Court of Auditors found

that the Commission expected the evaluation report to present better and more

complete information on the results achieved and more information on the delivery of

the Europe 2020 targets as from the 2017 financial year. The Commission also thinks it

will be difficult to separate the impact of the

budget from the impact of national

budgets and external factors.

2.2

The European Court of Auditors’ efficiency reports

The European Court of Auditors audits the information the Commission provides on

expenditure every year. It audits not only the regularity but also the efficiency and

effectiveness of expenditure in order to express an opinion in its annual report on the

Commission’s implementation of and accountability for the budget.

The European Court of Auditors does not express an opinion on the use of

funds in

individual member states; that is not its task. Its annual report therefore does not

include a formal opinion on the effectiveness of

programmes implemented in the

member states.

Apart from its annual report, the European Court of Auditors publishes about 20

special reports each year on the effectiveness of expenditure in specific areas. The

special reports’ subject matter, which the European Court of Auditors itself selects,

varies from EuropeAid (regarding its monitoring and evaluation systems) to the airport

infrastructure paid for by the

eu.

The European Court of Auditors often audits projects

on a random basis in a number of selected member states. Most of the audits consider

the structure of a programme and provide more information on performance (outputs)

than impact (outcomes).

COM(2015) 313 final;

26 June 2015. Report from

the Commission to the

European Parliament and

Council on the evaluation of

the Union’s finances based

on the results achieved,

p. 6-7.

See section 1.3.2 for more

information on the Europe

2020 targets.

This was one of the key

points in a draft resolution

issued by the European

Parliament’s Budgetary

Control Committee on

16 December 2013. The

resolution was adopted by

a plenary session of the

European Parliament in

February 2014 (Report on

the future role of the Court

of Auditors; The procedure

on the appointment of

Court of Auditors’

members: European

Parliament consultation.

A7-0014/2014).

2.3

Efficiency reports issued by supreme audit institutions

The member states’ supreme audit institutions (SAIs) can carry out their own audits of

the effectiveness and efficiency of

policy in their home countries if they are

mandated to do so.

Varied scope of national audits

With the exception of the Luxembourg

sai,

all supreme audit institutions in the

audit

eu-related

subjects. The number of such audits has increased in recent years.

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The audit scope varies greatly. About two-thirds of the audits consider the management

funds (regularity); the remainder look at policy performance and impact.

In the Netherlands insight chiefly into performance, less into impact

In previous

Trend Reports we considered the relevant national authorities’ insight

into the effectiveness of

policy at both EU and member state level, with a particular

emphasis on the Netherlands.

We repeatedly found that the Dutch programming authorities (and with them the

responsible ministers) had an insight into policy performance but little information on

the ultimate outcomes achieved through

funding and

policy.

Insight into performance and

outputs…

…but not into impact and outcomes

of EU policy

A road is built with EU funding

Is the road used and what are the benefits for the region?

No efficiency information yet in Dutch national declaration

The national declaration the Dutch government issues every year to account publicly

for its use of

funds contains no information on the effectiveness and efficiency of

expenditure. We recommended in our report on the 2013 national declaration

(Netherlands Court of Audit, 2013b) that such information be included.

The government has not yet acted on this recommendation.

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3 Conclusions and recommendations from part

3.1

Conclusions

No improvement in regularity at

level

It can be seen from the accountability documents issued by the European Commission

that there was no improvement in regularity last year. The European Court of Auditors

was again unable to issue a positive Statement of Assurance on the use of funds from

the

budget.

The information value of the Commission’s accountability documents, however, was

higher. Improvements have been made in the quality and consistency of the DGs’

activity reports. The explanations of the reservations made by Directors-General on the

reliability of the information provided have also improved over the years.

No improvement in the member states’ accountability for regularity

The member states’ accountability for their use of funds received from Brussels did

not improve last year either. Only three member states, one being the Netherlands,

voluntarily issued national declarations in 2014.

None of the other member states

barring the United Kingdom

has ever issued a public declaration on the regularity of

their use of EU funds. They have not accepted political responsibility for that

expenditure in parliament.

Compulsory publication of national declarations by all member states would

considerably improve the democratic content of accountability for

expenditure in

the member states. Some improvements are expected in the near future. The

instruments provided by the new Financial Regulation, such as the obligation to have

the annual summaries accompanied by the opinion of an independent audit body as

from 2016, represent a step forward. However, they will not resolve the shortcomings

in the annual summaries themselves. Unlike national declarations, the annual

summaries are not made public and are not signed at political level.

Still little insight into the impact of

policy

Previous audits by both the European Court of Auditors (of the

as a whole) and the

Netherlands Court of Audit (of the Netherlands) have found that there is insight into

the performance (outputs) of

funds in the member states but little is known about

the impact (outcomes). We also found that the implementation of

programmes

focused largely on compliance with the rules (regularity) rather than on whether the

projects had had the desired effect.

3.2

The other two countries are

Denmark and Sweden.

The United Kingdom

published a national

declaration until two

years ago.

Recommendations

We recommend that the government continue to encourage other

member states to

render political account, as the Netherlands does, for their use of the money they

receive from Brussels. Such a national account would also make it easier for the

European Court of Auditors to rely on the results of national audits. A start could in

any event be made with the publication of existing accountability documents.

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In this context we again recommend that the Minister of Finance urge other member

states in the Ecofin Council to publish their annual summaries and the new

management declarations as from 2016 and that the European Commission publishes

its analysis of them.

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Part II

Discussion

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4 The importance of recognising the added

value of the EU

Fourteen annual

Trend Reports: recurrent problems

Our

Trend Reports have argued for many years that the citizens of the

have a

right to expect

funds to be spent in accordance with the rules (regularly), and that

resources are used optimally (efficiently) in order to achieve the intended result

(effectively). Furthermore, citizens must be able to see that they are. Unfortunately

there are several recurrent problems regarding the regularity, efficiency and

effectiveness of how

funds are spent.

For twenty years in succession, for instance, the European Court of Auditors has been

unable to express a positive Statement of Assurance on the regularity of the

eu’s

expenditure. There is also a lack of transparency at member state level. It is illustrative

that only three of the 28 member states have so far been willing to publish national

declarations to account to their national parliaments for their use of

funds. And

there is just as little understanding of the results of

projects. As a rule, the member

states’ accountability reporting is confined to descriptions of the measures taken; they

say little about whether the measures have actually achieved their desired effect.

Over the years, moreover, our

Trend Reports have repeatedly called for the

publication of reports on the outcomes and social effects of

programmes. Such

information is essential if citizens are to know what

funds achieve. It could help

strengthen support for the

and enable a well-informed public debate on how to

distribute

funds. It is important that this money is used in areas where the

has

added value. This corresponds with the principle of subsidiarity.

To date audits of

programmes have focused on their compliance with the rules.

Little attention has been paid to whether the funds have had their intended effect and

whether the available budget has been spent efficiently. We have seen some signs,

however, that changes are being made in the right direction. We will use this part of

the

Trend Report to look at a number of initiatives taken chiefly by the new

European Commission that will be considered during the Dutch presidency of the

eu.

Focus on results

The new European Commission that took office in 2014 under the chairmanship of

Jean-Claude Juncker has given high priority to the performance of the

eu.

It aims to do

more with less money and, where possible, to simplify the rules. These developments

provide an opportunity to bring about tangible improvements.

The European Commission wants the

to spend its budget in such a way that it

generates the greatest possible added value. This could lead to a change of direction.

To date funding has been guided by the principles of

spend

and

audit.

The chief concern

has been to check the implementation of

programmes by auditing the regularity of

expenditure. Less attention has been paid to whether the programmes have had the

desired impact.

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Traditionally,

funds have been allocated in advance of each seven-year programming

period to a number of policy fields and this distribution is fixed for the entire seven-

year period. The funding that each member state receives for most of the policy fields

is therefore determined in advance. As a result the Commission’s budgeting system is

inflexible. According to the Commission it is now time for greater flexibility.

Otherwise, the

will be unable to rise to the crises and urgent challenges it is facing.

Allocation should be more closely aligned to today’s policy priorities rather than being

the outcome of the ingrained considerations and political compromises of the past.

Furthermore, the Commission wishes to fund bigger and better projects that actually

make a difference and serve several policy goals at the same time. According to the

Commission, this will be more effective than funding countless smaller projects that

attempt to implement separate parts of

policy.

Finally, the Commission thinks more attention should be paid to the results of

expenditure: what have the programmes and projects actually delivered in terms of

outcomes and impacts?

In our opinion the new direction taken by the Commission is a route to a more

transparent and effective Union: an

that spends its money on the most pressing

problems. At present the member states seem to focus primarily on getting back as

much money as possible from the

eu.

This ‘juste retour’ principle is not conducive to

the effective use of

funds. On the contrary, it encourages member states to spend

all the budget allocated to them and to carry out projects that deliver few if any social

benefits and to fund projects that do not really need funding. In recent years our

Trend Reports have highlighted cases that illustrate this situation.

EU Trend Report 2014 and 2015: no insight into impacts

Our 2014 EU Trend Report looked at the effectiveness of thirty ERDF projects and our 2015 report

at a further six projects that were funded at least in part from other EU programmes. We noted

that effectiveness played little if any part in the selection of projects or on their closure upon

completion.

We also found that some of the projects would have been carried out even without EU funding.

We gave the example of a sporting facility that had been built using funds from the Rural

Development Fund. The grant applicant admitted that the gym would have been built anyway,

even without financial backing from the EU. Our selection of projects was too small to draw

general conclusions on funding, however.

In our opinion it would be more efficient and effective to allocate funds from the

budget to those programmes and projects that generate the greatest added value in

accordance with the principle of subsidiarity. To do so, however, it would be necessary

to know which projects would be the most effective. Projects from different member

states would thus compete against each other for

funding so that the best project

proposal would be funded regardless of which member state proposed it. If

funds

were allocated in accordance with the ‘subsidiarity and added value’ criterion, member

states could no longer presume that they would get back at least some of their

contributions to the

eu.

This would represent a turnaround in the nationally oriented

thinking within the

eu.

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Controls: flexibility and simplification

The Commission is seeking to make the management of

funds in the member

states

more flexible

and

simpler.

Administrative burdens must be reduced and controls

must be simplified wherever possible. More, or more stringent, controls should be

carried out only in areas where there are proven risks of management error. The cost of

controls, moreover, should never exceed the benefits.

In our opinion the Commission’s ambition of making financial management more

flexible and simpler is both beneficial and necessary in order to improve the efficient

functioning of the

eu.

Importantly, the Commission is also advocating greater

transparency regarding the regularity of

expenditure and/or the effectiveness of the

activities funded and the problems existing in this area. This requires appropriate

monitoring of the implementation of

programmes and adequate reporting on the

use of the

funds. In our opinion the

added value should be made transparent in

all member states, not only in the Netherlands.

Money from the market

The Commission wants the

budget to act as a ‘magnet’ that attracts external

funding for

projects.

policy is currently implemented chiefly by awarding

grants. In the future more funding should be in the form of loans, guarantees, equity

interests and similar financial instruments. Every euro in the

budget must attract

a contribution from the market and thus create ‘more value’. The Commission is

urging the member states to make significantly more use of such financial instruments

in the new 2014-2020 programming period.

Money from the market, however, does not work in the same way as a grant and this

should be borne in mind when selecting projects. Money from the market has to ‘earn

a return on its investment’. The Commission recognises that only financially healthy

projects that generate sufficient income to pay back the loan, guarantee or other

instrument will be eligible for funding. At the same time the projects must be ones that

the market would not invest in without cofunding from public sources.

The Juncker Fund: a new approach to the EU budget

An interesting fund that reflects the Commission’s new thinking on the EU budget is the European

Fund for Strategic Investments (EFSI), popularly known as the Juncker Fund after its initiator. It was

established in June 2015 as a vehicle for the Commission to invest at least € 315 billion in the period

from 2015 to 2017 to promote structural economic growth in the EU. The fund will be applied for

infrastructure, research and sustainability projects and to invest in small and medium-sized

enterprises. It will be managed by the European Investment Bank. Not all the billions placed in the

fund will come from the public purse;

most of the capital will be raised on the private market.

The European Commission

will guarantee € 16 billion,

half of which as a reserve

formed from the EU budget.

The European Investment

Bank (EIB) will form its own

reserve of € 5 billion for the

fund.

Funding

projects by means of loans, guarantees, equity interests and similar

private financial instruments is a step towards greater (and more transparent)

effectiveness. It is thought that the results that a project is expected to achieve will

determine the accessibility to such financial instruments more than in the case of

traditional grants. This in turn could increase the effectiveness of

funding.

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There are some drawbacks to the use of market funds, however, that must not be

overlooked. The

must clearly identify, for example, where its use of a financial

instrument will generate added value and where market forces should be left to work

on their own. Striking the right balance may prove a difficult exercise for the

Commission and the member states.

A different assessment of regularity?

To date the regularity of how the European Commission spends the

budget has

been assessed by means of just one indicator: the error rates determined by the

European Court of Auditors during its annual audit of the regularity of

expenditure.

According to the Juncker Commission, this indicator is far too restrictive. For

instance, no account is taken of corrections made in subsequent years (such as the

recovery of undue payments and the imposition of fines on member states). According

to the Commission it would be better to use a

multiannual

error rate to assess regularity

as it would allow for the correction of errors during the programming period. In the

Commission’s opinion this would also act as a positive incentive to make corrections,

as the assessment would also take into account the corrective capacity of the

management and control systems.

The Commission’s approach is understandable. But we wonder whether the issue of

regularity should not be analysed in more detail before deciding on the best way to

assess it. We noted above that there are recurrent problems in the regularity of

expenditure. The fact that the European Court of Auditors has not issued a positive

Statement of Assurance on

expenditure for twenty years in succession speaks

volumes. But what are the problems at the root of the negative Statements of

Assurance?

Our audit work over recent years of the regularity of

expenditure in the Netherlands

found a number of recurrent issues:

•

and national public contracting rules are not observed;

• Project costs are claimed in Brussels even if they are ineligible;

• Management and control bodies interpret

funding rules differently, with one

body approving things that another rejects and vice versa.

Some of the errors arise from the complexity of the rules and procedures in place for

grants. What is and is not permitted is so complicated that many actors in the

‘funding mill’ have a poor understanding of the subtleties and make unintended

mistakes. The fact that this has been known for so many years and has not been

improved indicates systemic error. The

rules are subject to too many conditions

and the conditions can be interpreted in too many ways.

The annual discussion of the error rate the European Court of Auditors determined has

not yet led to any meaningful improvements. In this light, the European Commission’s

objections to the assessment are understandable. Annual auditing, however, has the

benefit of keeping the auditee on its toes and enables changes and corrections to be

made when errors are detected rather than at the end of the project. In our opinion a

combination of annual audits and an insight into the errors that remain in the

multiannual programming period after corrections have been made, might be a more

productive approach.

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It is not unimportant in this respect that auditors at

level rely on the regularity

auditing of

funds carried out by the supreme audit institutions (i.e. at national

level). Such a ‘single audit structure’ has benefits not only for the auditors. It also

reduces the audit burden on both grant providers and grant recipients. To this end,

the European Court of Auditors and the supreme audit institutions will have to work

together more closely. This is therefore a matter for the community of supreme audit

institutions in the

to address.

Discussion of a new budget system: an important step

We welcome the increasing willingness within the

to ask fundamental questions

about the allocation of

funds and the readiness of the Commission’s to respond to

this signal. A discussion has been started about replacing the current budget system

with its traditionally-set expenditures with a more flexible system that can respond to

developments and allocate

funds on the basis of added value. The German finance

minister, for example, has proposed that the use of

funds be limited to areas where

the

has added value and to problems that can be tackled only at

level. This can

be seen as an embodiment of the principle of subsidiarity. The

should let member

states themselves fund initiatives that currently receive

funding but do not

necessarily have to be paid for by the Union.

The funding and budgeting issues cannot be seen in isolation from questions about

the organisation and tasks of the

eu.

As long as the

budget is ‘fed’ directly by the

member states, the member states will want to get back a ‘fair’ share of the budget and

will therefore seek to spend

funds in their home countries, even if cross-border

competition between projects would be more effective. The discussion of funding

therefore goes to the heart of the

eu:

What is the

eu’s

raison d’être? What could the

member states do better themselves? Where does the

have added value? In addition

it is important to make the results of

activities known to all concerned, not least so

that the regularity, efficiency and effectiveness of expenditure can be audited

efficiently. Our position is that the citizens of the

have a right to expect

funds to

be spent efficiently, effectively and regularly and that expenditure should be completely

transparent.

In conclusion

In our opinion the European Commission has taken the right course in considering

the initiatives discussed above. It is now important that the initiatives bear fruit. The

financial management issues we have repeatedly highlighted in our

Trend Reports

and elsewhere have been in existence for many decades. A fundamental revision of the

budgeting system could help make these recurrent problems a thing of the past.

Similarly, an appropriate system should be introduced to account for and audit

expenditure. Thanks to the Commission’s efforts in the past few years, some ground

has been gained in the discussion of accountability reporting of

expenditure at the

national level. But there is still a lot of ground to be won: too few member states are

willing to publicly account for their use of

funds annually. This, too, is an urgent

challenge.

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These improvements require not only good ideas and intentions but also decisive and

consistent narratives and actions. Democratic accountability means clarifying the

results the

has achieved and letting this insight help guide the future activities of

the

eu.

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Bibliography

Netherlands Court of Audit (2014).

Trend Report 2014; Developments in the financial

management of the European Union.

The Hague: Netherlands Court of Audit.

www.courtofaudit.nl/english.

Netherlands Court of Audit (2015a).

Trend Report 2015; Developments in the financial

management of the European Union.

The Hague: Netherlands Court of Audit.

www.courtofaudit.nl/english.

Netherlands Court of Audit (2015b).

Report on the National Declaration 2015; Accountability

by the Netherlands regarding the European funds under shared management.

The Hague:

Netherlands Court of Audit. www.courtofaudit.nl/english.

European Court of Auditors (2015).

Annual report of the Court of Auditors on the

implementation of the budget concerning the financial year 2014, together with the institutions’

replies.

Luxemburg: Official Journal of the European Union 2015/C 373/01,

10 November 2015.

FIU, Alm.del - 2015-16 - Bilag 93: Materiale fra temamøde 19/4-16 om EU’s budget og regnskaber: Samspillet mellem Folketinget og EU’s kontrolorganer

Audit team

Mr P. (Patrick) Antenbrink (project manager)

Mr J.M.M. (Jan) van den Bos

Mr A.H.J. (Arie) Hilhorst

Mr R.M.G. (Robert) Hub

Mr P.E. (Peter) Jongenotter

The Netherlands Court of Audit

Algemene Rekenkamer

Lange Voorhout 8

P.O. Box 20015

2500 EA The Hague

phone +31 70 342 44 00

www.courtofaudit.nl

Cover

Design: Corps ontwerpers, The Hague

Photography: Aspectief Fotografie

(sculpture ‘Europe and the bull’,

Ek van Zanten, 1961)

Infographics

Joris Fiselier

Infographics

The Hague, March 2016