EUU, Alm.del - 2016-17 - Bilag 607: Rapport fra Den Europæiske Revisionsret maj 2017

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European Court of Auditors

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EUU, Alm.del - 2016-17 - Bilag 607: Rapport fra Den Europæiske Revisionsret maj 2017

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EUU, Alm.del - 2016-17 - Bilag 607: Rapport fra Den Europæiske Revisionsret maj 2017

Time has come to say farewell

The editor-in-chief will retire as of May 2017

but the ECA Journal will continue under a new

leadership.

Every end is also a new beginning.

My best wishes to the successor.

Rosmarie Carotti

EUU, Alm.del - 2016-17 - Bilag 607: Rapport fra Den Europæiske Revisionsret maj 2017

TABLE OF CONTENTS

Time has come to say farewell

The editor-in-chief will retire as of May 2017 but the ECA Journal will continue under

a new leadership

I certainly welcome any recommandations from the ECA

Interview with Commissioner Phil Hogan

By Rosmarie Carotti

Malta EU Presidency – Priorities

Visit by Malta’s Minister for Finance Hon. Prof. Edward Scicluna

By Rosmarie Carotti

Bank resolution in Europe – Preparing for the ECA’s first performance

audit obligation

By Matthias Blaas, auditor

FOCUS

Special reports Nos 2, 4, 5 & 6/2017

Contrôles et évaluation de la gestion publique : quels enjeux ?

Présentation du livre «Contrôle et évaluation de la gestion publique : Enjeux contemporains

et comparaisons internationales»

Par Danièle Lamarque, Membre de la Cour

We had a real impact on the political decisions on Maritime Transport in Italy

By Enrico Grassi, principal auditor Chamber 2

Can Plato and Aristotle help us audit in the digital world?

Audit today: classical principles + digital tools

By Jesús Nieto, auditor in the Directorate of the Audit Quality Control Committee

EUU, Alm.del - 2016-17 - Bilag 607: Rapport fra Den Europæiske Revisionsret maj 2017

I certainly welcome any recommendations from

the ECA

Interview with Commissioner Phil Hogan

By Rosmarie Carotti

Commissioner Phil Hogan (2014 – 2019) is responsible for

Agriculture and Rural Development

R. C.: How do you rate the cooperation between

the Commission and the ECA? How can the ECA’s

recommendations be better integrated into the policy

field of agriculture and rural development? Where are

synergies and where do views diverge?

Commissioner Phil Hogan:

The ECA has begun looking increasingly closely at the way in

which EU policies perform in terms of bringing value-for-money, and that is a good thing.

It's clear that in wanting to make the CAP as effective and efficient as possible, the ECA

and the Commission are very much on the same page. The ECA's assessments will be a key

contribution to our ongoing discussions on the modernisation and simplification of the CAP.

We share the same objectives – to make the policy as effective as possible – so it's important

to give EU taxpayers a balanced and proportionate picture of how their money is being

spent.

As far as follow-up of the recommendations from the ECA is concerned, I'm glad that the ECA

is keen to improve in this area – as indeed are we in the Commission. But with so many of

the recommendations covering issues that are dealt with by the Member states directly, this

is not so easy. The Commission has a supervisory role and so cannot go so far as accepting

or refusing recommendations from the ECA on Member states' behalf; nor do we have the

capacity to follow-up recommendations targeting the national level. We need to find a joint

solution that can make this work more effectively.

R. C.: Are there concrete proposals to help farmers to get better prices from food

processers?

Commissioner Phil Hogan:

We do have measures which aim to give farmers a leg up when

it comes to the prices they obtain.

First, we encourage farmers to create and join producer organisations which can provide

a counter-weight to the commercial power of their more concentrated business partners

both up- and downstream – for example the multinational feed and seed groups or the big

retailers.

Second, we enhance market transparency by sharing business-relevant data for certain

product sectors. Knowing more about what the market is doing and how it might evolve in

the future is vital for farmers to be able to hedge against price volatility, but farmers usually

have a hard time obtaining that sort of data and there is a role for the Commission to play

to fill the gaps in their knowledge. We have stepped up our activities in this regard and now

have market observatories for dairy and meat sectors, with observatories for cereals and

sugar to follow later this year.

EUU, Alm.del - 2016-17 - Bilag 607: Rapport fra Den Europæiske Revisionsret maj 2017

I certainly welcome any recommandations from

the ECA

continued

Third, the Commission uses exceptional measures to stabilise markets when the going

gets tough for farmers. We have used them recently with regard to the milk crisis and to

good avail. Last but not least, the EU's direct payment scheme provides income support

for farmers, a cushion that does not depend on market outcomes or prices.

But while we have quite a few means at our disposal to help support farmers' incomes,

there is still more we can do. Last year I asked the Agricultural Markets Task Force – a team

of 12 experts with experience of working at every level of the food chain – to examine

the potential for further improving the way in which the food chain is governed – for

example where regulatory improvements can help defend against market failures. The

Task Force published its report in November with concrete recommendations for positive

changes, and I'm currently looking at these with a view to bringing forward policy

proposals later this year. There are plenty to choose from: tougher rules on unfair trading

practices, improvements to market transparency and greater clarity on how producers can

cooperate without falling foul of competition rules, to name just a few.

R. C.: What is the future of European exports of agricultural products?

Commissioner Phil Hogan:

Thanks to successive CAP reforms, the EU is now a net

exporter of agri-food products. Since 2006, both EU agri-food exports and imports from

third countries have doubled in value. Last year, the annual value of EU agri-food exports

reached a new record level of €130.7 billion, which is €29.4 billion (or 29%) higher than five

years ago. EU agri-food imports reached €112 billion in 2016, which means the EU has a

trade surplus of € 18.8 billion. Although the EU was previously a net importer of agri-food

products, in 2012 it became the world's top exporter of agri-food products – as well as the

top importer. Today, the agri-food sector represents 7.5 % of total EU exports in goods in

2016 and 6.6% of all imported foods are agri-food.

So the EU is in a pretty good shape when it comes to agri-food trade, but the good news

is that in certain sectors we expect it to do even better in the future. One estimate, based

solely on trade agreements that have been signed and implemented, suggests that by

2026, the EU should export close to 15% of its milk production and become the world's

top exporter of dairy products, just ahead of New Zealand, with a strong increase in

exports to China the main driving force. The situation is not quite so positive for meat

exports, however, with 2026 figures expected to be around the current level of 5 million

tonnes – itself a record export performance – as a number of factors combine to reduced

EU meat output as a whole. The EU is also expected to become the world's largest

exporter of wheat by 2026, increasing its share on the world market from 16% to 22%.

It's not easy of course to predict how EU agri-food trade will develop, and a lot will depend

on whether comprehensive trade agreements are in place. This is clear from a recent

study of three such trade deals – with Mexico, South Korea and Switzerland – which have

together added more than €1bn in EU agri-food exports since they were signed. This

has to be offset by the increasing criticism of globalisation and concern about the wider

benefits of trade deals among citizens, which is likely to have an impact on the number

of such deals in the future, and thus on future trade potential for the agri-food sector.

But although they show clear benefits, FTAs are not the sine qua non for increasing trade

in agri-food products, and I will continue to pursue other avenues – such as diplomatic

offensives by leading business delegations to countries around the world - that can help

Europe's food and farming sector reach out to the rest of the world.

EUU, Alm.del - 2016-17 - Bilag 607: Rapport fra Den Europæiske Revisionsret maj 2017

I certainly welcome any recommandations from

the ECA

continued

R. C.: What are the possible consequences of the Brexit on Irish agriculture?

Commissioner Phil Hogan:

It's still too early to tell what the likely consequences of Brexit

might be for anything, although it's clear that Ireland in general has been very vocal in

warning of the likely impact of its largest trading partner leaving the EU. Now that Article

50 has been invoked, the negotiations can begin in earnest but it would still be premature

at this stage to speculate on how those negotiations are likely to affect food and farming

in general, in the UK or in the EU. However, the Commission is fully aware that there is a

risk that the UK's withdrawal from the Union could have a significant impact on current

trade patterns for agricultural products between the UK and the EU, in particular Ireland.

R. C.: Is it right to say that cross-compliance and climate actions did not deliver the

expected results? What can be improved?

Commissioner Phil Hogan:

No, I don't accept that assessment. I remain convinced that

cross-compliance has achieved its aim of raising awareness of the need to make sure

farmers farm in a sustainable way, and that there are rules in place to help make sure

this happens. To provide a practical example: thanks to cross-compliance rules, today,

watercourses are protected with buffer strips, which contribute to enhancing water

quality.

As far as climate change is concerned, we have already made real progress. The policy has

helped to reduce greenhouse gas emissions from agriculture by 23% since 1990, without

reducing our production potential. The CAP is increasingly focused on sustainability and

climate and the environment have become key priorities within the rural development

programmes. We estimate that € 57.2 billion of CAP funding for 2013-2020 is 'climate-

relevant' . An assessment of the impact of the CAP on tackling climate change and

greenhouse gas emissions will be carried out this year, with the results available next year.

It is clear that agriculture will have to contribute to helping the EU meet its commitments

under the Paris Agreement, and the challenge will be to further reduce agricultural

greenhouse gas emissions and enhance the carbon sequestration capacity of agricultural

soils in a way that is consistent with food security objectives.

As with all other policies, the Commission is consistently looking at where improvements

can be made, and in our case we are focusing particular where CAP rules can be made

simpler. I have always been open to ideas on how to do this, and I certainly welcome

any recommendations from the ECA on how to improve our policy. In fact, my services

have already taken on board a number of the ECA's most recent suggestions with regard

to cross-compliance, for example by seeking to improve way in which information is

shared between other Commission services and with national authorities. They have also

launched a study on the possible costs of cross-compliance and started a review of the

cross-compliance indicators.

R. C.: What do you expect from the next MMF budget discussions for the 2020 CAP?

Commissioner Phil Hogan:

We've just celebrated 60 years of the EU – and the CAP has

been around for 55 of those 60 years, in one form or another. President Juncker has made

it very clear that agriculture is and will remain an important area for Europe.

Given its importance to the EU, it's no surprise that the CAP is always the subject of

vigorous debate during the wider MFF discussions. But at the same time, it is no secret that

EUU, Alm.del - 2016-17 - Bilag 607: Rapport fra Den Europæiske Revisionsret maj 2017

I certainly welcome any recommandations from

the ECA

continued

every part of the EU budget, including the CAP, will be under severe scrutiny during the

negotiations. This is partly due to changing political priorities – issues such as immigration

and security are top of the current agenda – and partly due to continued pressure on

national budgets.

It is important throughout the negotiations that we do not lose track of what the EU

budget is actually for – to adequately fund the policies we all agree are needed at EU

level. Getting the policy right is just as, if not more, important than the question of

how to finance it. This is one of the reasons why I have launched a consultation on the

modernisation and simplification of the CAP that will lead to a communication later in the

year and potential new policy proposals after that. It's important to stress that this process

of reflection does not prejudge in any way the financial allocation for the CAP in the next

MFF; in other words, the discussions we are having now are focused solely on policy and

not on budget. How to shape the future CAP so that it delivers genuine value for money

is my key concern. We need a modern and a simpler policy, and one that allows us to

demonstrate clearly that every euro spent at the EU level was worth spending.

EUU, Alm.del - 2016-17 - Bilag 607: Rapport fra Den Europæiske Revisionsret maj 2017

Malta EU Presidency – Priorities

Visit by Malta’s Minister for Finance Hon. Prof. Edward Scicluna

29 March 2017

By Rosmarie Carotti

Minister Scicluna had meetings with the

President and Members of the Court and gave a

presentation to all staff on Malta’s EU programme

and list of priorities for the first six months of this

year.

Professor Scicluna became Minister of Finance in

March 2013. In 2009 he was elected as a Member

of the European Parliament and Vice-chair of its

ECON Committee, the Committee on Economic

and Monetary Affairs.

The Maltese Presidency

Malta is holding the presidency of the EU Council from 1 January to 30 June 2017. As ECA

President Klaus-Heiner Lehne said, Minister Scicluna’s visit reflects the importance the

Presidency of the Council gives to role of ECA and its work. The ECA has in fact recently

published a number of reports which refer to the Maltese Presidency’s priorities.

“If only the decision-makers paid attention to the specific reports of the ECA, which are

so relevant and important”, Minister Scicluna said. He knows how important it is to be

disciplined and transparent having been on many committees of regulatory bodies, banks

and private institutions.

Malta is the smallest country in the EU to take over the EU Presidency which is now half-way.

The present times are not easy: The US have an agenda which is challenging the accepted

European standards as far as trade, globalisation and taxation is concerned. On the other

side of the Atlantic, the Brexit was launched. This is not a coincidence.

People do seemingly irrational things because they are afraid of terrorism, migration and

economic recession, feels Minister Scicluna. There is lack of faith in politicians delivering

work and prosperity. Capital and people are there but they are idle. It is not easy to talk

about the future of Europe with this scenario.

The priorities of the Maltese Presidency

The priorities of the Maltese Presidency in ECOFIN are the legislative files under the Capital

Markets Union agenda in view of the need for the EU to be more business friendly. It is

not easy to get a company to be quoted, especially if small companies are concerned.

Regulations are very demanding and the fees high. At the same time banks are de-risking,

which is badly affecting EU investments with the third world.

EUU, Alm.del - 2016-17 - Bilag 607: Rapport fra Den Europæiske Revisionsret maj 2017

Malta EU Presidency – Priorities

continued

Returning to the Capital Markets Union there is the securitisation file to be discussed

with the European Parliament and various proposals like the one concerning Fintech.

FinTech, the abbreviation for financial technology, is mainly used to refer to firms that use

technology-based systems either to provide financial services and products directly, or

to try to make the financial system more efficient. Digital finance, for example, is one of

them and considered to be the future. More initiatives are coming from the Commission

on that. There also is the question of VAT on e-commerce and e-books.

Concerning taxation, what was acceptable ten years ago is no longer acceptable today.

This applies to tax avoidance. EU citizens do not want big companies to play one country

against another in order to avoid paying what should be paid. In tax Minister Scicluna is

proud that Malta has managed to clinch a deal, the Anti-Tax Avoidance Directive 2. The EU

now wants non-EU countries to have at least the minimum standards which apply in the

EU.

The Presidency also wants to address the issue of non-performing loans, but above all tax

certainty, which was also brought up in the G-20 meeting in Baden Baden where

Scicluna

represented the

Finance Ministers.

Brexit is quite unfortunate, says Minister Scicluna and a divorce which is coming at the

wrong time when the EU should be celebrating 60 years of marriage. Because of its

association in the past with the UK, Malta is a careful observer and sensitive to what is

happening in the North. But definitely there will be costs. And the Europeans will have to

ensure that rules are abided by.

Refugees are forced to flee their country and are a humanitarian issue. They cannot be

rejected. Economic migration, on the other hand, has nothing to do with war but with

extreme poverty and extreme income differences. The differences between the EU and

Africa are widening and providing Africans with a decent living is needed to contain

external migration. Boosting private investment in North Africa is one of the priorities of

the Maltese Presidency of the Council.

In replying to questions put forward by the audience, Minister Scicluna addresses various

issues ranging from an agreement with Libya to a harmonised corporation tax.

Concerning Libya, Malta’s efforts to stabilise Libya are now more important than ever.

Minister Scicluna stresses that Malta keeps good relations with all the factions in Libya and

is serving as a peaceful mediating country.. This trust is important.

Concerning the second question, Minister Scicluna declares that there is nothing wrong

with competitive taxation as long as there is the rule of law. But he is against international

companies playing regimes against each other and transferring profits to low-tax

countries. The Maltese presidency senses that there are many countries who are not in

favour of recent re-launch of the common consolidated corporate tax case (CCCTB) - a

common tax rule to calculate business tax across the EU. But as President of Ecofin Malta

would push to deliver the first of a two phased approach.

To conclude, it was a good and exceptional meeting in presence of the all ECA’s Members

including the Member from Malta, Leo Brincat.

EUU, Alm.del - 2016-17 - Bilag 607: Rapport fra Den Europæiske Revisionsret maj 2017

Bank resolution in Europe – Preparing for the

ECA’s first performance audit obligation

By Matthias Blaas, auditor

In the aftermath of the 2008 financial crisis the legislator decided to establish a European

Banking Union. Currently this consists of the Single Supervisory Mechanism (SSM), under

the responsibility of the European Central Bank, and the Single Resolution Mechanism

(SRM). The SSM is responsible for directly supervising the most significant banks in

participating Member States. The Single Resolution Board (SRB), a European agency, is

responsible for implementing the SRM by preparing resolution plans for most significant

and cross-border banks and, if necessary, for resolutions of those entities. The Banking

Union may be expanded in future to include a Single Deposit Guarantee Scheme or a

European Deposit Insurance Scheme (EDIS).

Figure 1: The three pillars of the European Banking Union (*Planned)

To ensure that the rules are applied consistently and that the EU’s financial interests are

safeguarded during a resolution, the legislator also gave the Court its first ever contingent

performance audit obligation. Normally, as the guardian of the EU’s finances, the Court

chooses its performance audits independently based on an internal risk evaluation and

prioritisation process. However, Article 92 of the SRB’s founding Regulation (EU) No

806/2014 confers on us a specific obligation. If the Single Resolution Fund (SRF) is used

or the Commission makes an assessment of Fund aid, we are required to carry out a

comprehensive performance audit within a specified time frame.

This obligation necessitates expertise in a very specialised area. We have taken several

steps to ensure that we are fully prepared to discharge our duties in this regard:

The first thing was to strengthen our team of internal experts on financial and

economic governance. A part of the team was responsible for producing a first

audit report on the SSM, which was published in November 2016.

We have also established an audit team, consisting of eleven auditors from all

chambers, to deal with the contingency of a bank resolution. The individuals

selected have banking backgrounds and have received training on bank

resolution and related topics. They will ensure the necessary human resources are

available in the event the Court’s audit obligation is triggered.

EUU, Alm.del - 2016-17 - Bilag 607: Rapport fra Den Europæiske Revisionsret maj 2017

Bank Resolution in Europe - The ECA’s first performance audit

obligation and its preparation

continued

In addition to this internal capacity, through a public tender the

Court has set up a roster of external experts in bank resolution,

risk management and valuation, as well as legal experts, who can

provide valuable assistance in the event of a resolution or through

consulting and training activities. Experts on the roster have

already provided staff training.

In cooperation with the European University Institute, we

organised a training session in April 2017 on recovery and

resolution proceedings under the relevant EU legislation. We plan

to further intensify our cooperation with the EUI.

In March 2017 we issued a call for a multiple framework contract

for the provision of external expertise in the field of banking

resolution. We are interested in working with firms with the

necessary resources and expertise to assist us with our bank

resolution mandate. Detailed information can be found in the

tender documents.

As a final component of preparations for our audit obligation, we

have held several meetings with other stakeholders, such as the

Commission, the SRB and the Council, and auditors have attended

external conferences and seminars to gather academic and

market perspectives.

Based on all this preparatory work, we decided to conduct a performance

audit on the Single Resolution Board. The task was made a priority in

the Court’s work programme for 2017. The audit is now underway and a

report should be published in winter 2017/2018.

EUU, Alm.del - 2016-17 - Bilag 607: Rapport fra Den Europæiske Revisionsret maj 2017

FOCUS

Focus

Special

Report

N°02/2017

The Commission’s negotiation of 2014-2020 Partnership Agreements

and programmes in Cohesion: spending more targeted on Europe 2020

priorities, but increasingly complex arrangements to measure performance

Partnership Agreements are strategic investment plans for EU Member States

which indicate their national spending priorities for the European Structural

and Investment funds for the programme period 2014-2020. In this report, we

examined whether the Partnership Agreements signed between the European

Commission and the Member States help target the funds with a total funding

volume of 350 billion EUR more effectively.

We found that, despite initial difficulties, the Commission and the Member

States have better focused the funds on growth and jobs, identified investment

needs and successfully translated them into objectives and results sought. They

have set actions addressing the needs and identified outputs for programmes

covered by the Agreements. However, an unnecessarily high number of

performance indicators have been developed and performance measurement

is not harmonised between the funds. We make a number of recommendations

to the Commission and the Member States to improve the operation of the

Agreements.

Click here for our full Special Report

Published on

5 April 2017

Special

Report

N°04/2017

Protecting the EU budget from irregular spending: The Commission made

increasing use of preventive measures and financial corrections in Cohesion

during the 2007-2013 period

We assessed whether the Commission’s preventive measures and financial

corrections were effective in protecting the EU budget from irregular

expenditure in the area of Cohesion. Cohesion policy accounts for 37 % of

spending from the EU budget and is to be some 350 billion euro for each of

the periods 2007-2013 and 2014-2020. Responsibility for Cohesion spending

is shared between the Commission and the Member States. Overall, we find

the Commission has made effective use of the measures at its disposal. The

Commission needs to remain vigilant in ensuring payments are free from error,

improving its reporting procedures and making use of its new, stronger powers.

Click here for our full Special Report

Published on

27 April 2017

EUU, Alm.del - 2016-17 - Bilag 607: Rapport fra Den Europæiske Revisionsret maj 2017

FOCUS

Focus

Special

Report

N°05/2017

Youth unemployment – have EU policies made a difference?

An assessment of the Youth Guarantee and the Youth Employment Initiative

This report examines the progress made by the EU Youth Guarantee in ensuring

that under 25’s receive an offer of employment, education, apprenticeship or

training within four months of leaving school or becoming unemployed. It also

evaluates the Youth Employment Initiative, which increased financial support

for those struggling the most. We found limited progress and results which

fall short of expectations with regard to of providing a good quality offer to all

NEETs (those not in employment, education or training). We make a number of

recommendations both to the Member States and to the European Commission

to improve the current and future initiatives in the area of employment.

Click here for our full Special Report

Published on

4 April 2017

Special

Report

N°06/2017

EU response to the refugee crisis: the ‘hotspot’ approach

In May 2015 the Commission introduced a new ‘hotspot’ approach in order to

assist Greece and Italy in coping with the sudden dramatic increase in irregular

migrants arriving at their external borders. In this report we conclude that, in

both countries, the hotspot approach has ensured that most of the arriving

migrants in 2016 were properly identified, registered and fingerprinted and

their data checked against relevant security databases. However, despite

considerable support from the EU, at the end of 2016 the reception facilities in

both countries were still not adequate. There was also a shortage of adequate

facilities to accommodate and process unaccompanied minors in line with

international standards. The hotspot approach further requires that migrants

be channelled into appropriate follow-up procedures, i.e. national asylum

application, relocation to another Member State or return to the country of

origin. Implementation of these follow-up procedures is often slow and subject

to various bottlenecks, which can have repercussions on the functioning of the

hotspots.

Click here for our full Special Report

Published on

25 April 2017

EUU, Alm.del - 2016-17 - Bilag 607: Rapport fra Den Europæiske Revisionsret maj 2017

Contrôles et évaluation de la gestion publique :

quels enjeux ?

Par Danièle Lamarque, Membre de la Cour

Danièle Lamarque, Membre de la Cour

Le 28 mars, j’ai présenté à la Cour ma dernière publication Contrôle et évaluation de la gestion

publique : Enjeux contemporains et comparaisons internationales, paru chez l’éditeur belge

Bruylant.

Dans ce livre nourri de mon expérience professionnelle et internationale, j’analyse les

différentes manières de rendre compte de la gestion publique, selon leurs objets et leurs

finalités : la certification des comptes, le contrôle juridictionnel, l’audit de la performance,

l’évaluation des programmes et des politiques publiques. Si les modalités du contrôle des

fonds publics tendent à converger au sein de la communauté internationale, sous l’effet

de l’harmonisation des normes d’audit et des normes comptables et de l’action d’INTOSAI,

chacune de ces approches conserve néanmoins sa spécificité.

Le contrôle de la régularité, le plus confortable pour les auditeurs car il s’appuie sur des

normes objectives, a dans quelques pays des prolongements juridictionnels : l’Italie et le

Portugal en offrent les modèles les plus achevés. L’audit de la performance, revendiqué par

les ISC comme l’approche la plus complète de la gestion publique, et l’outil le plus efficace de

son amélioration, doit évidemment être conforté et développé. Dans tous les cas, le contrôle

externe est complémentaire d’un contrôle interne qui tend, lui aussi, à se structurer et dont il

faut soutenir le développement.

Quant à l’évaluation des programmes et des politiques publiques, développée par un groupe

de travail d’INTOSAI, je m’attache depuis toujours à en promouvoir les pratiques : l’évaluation

met en effet en œuvre des méthodes et des disciplines variées, de l’économie aux sciences

sociales, pour rendre compte des résultats de l’action publique et de son impact sur la société,

en recherchant les liens de causalité entre cette action et les résultats obtenus. Au croisement

de la recherche et de la décision, l’évaluation met à jour la logique d’action à l’œuvre dans un

programme ou une politique, afin d’identifier ses facteurs de succès ou d’échec.

EUU, Alm.del - 2016-17 - Bilag 607: Rapport fra Den Europæiske Revisionsret maj 2017

Contrôles et évaluation de la gestion publique :

quels enjeux ?

continued

Parmi les nombreux acteurs qui concourent au contrôle de la gestion publique, les

Institutions supérieures de contrôle tiennent évidemment une place essentielle. Leur

appui au Parlement, chargé du contrôle de l’exécutif, est variable selon les modèles

institutionnels et politiques nationaux, mais cette relation tend à se renforcer partout dans

le monde. Les ISC sont dès lors conduites à affirmer leur indépendance et à renforcer leur

professionnalisme, gages de leur objectivité : leur légitimité ne résulte pas seulement de

leur statut, mais aussi de leur capacité à démontrer leur utilité, à travers par exemple la

pertinence et la publicité de leurs travaux, et la mise en œuvre de leurs recommandations.

Dans un monde incertain et ouvert, le contrôle et l’évaluation d’une action publique

de plus en plus complexe et éclatée entre de nombreux acteurs, sont plus que jamais

nécessaires. Les citoyens en attendent une garantie de transparence, de régularité et

d’efficacité, qui ne peut toutefois pleinement s’exercer sans un exercice rigoureux de la

responsabilité à tous les niveaux, administratif, managérial et politique.

EUU, Alm.del - 2016-17 - Bilag 607: Rapport fra Den Europæiske Revisionsret maj 2017

We had a real impact on the political decisions

on Maritime Transport in Italy

By Enrico Grassi, principal auditor Chamber 2

From left to right: Olaf Merk (OECD); Enrico Grassi (ECA);

Antonio Cancian (RAM Spa); Herald Ruijters (Commission)

The European Court of Auditors has had a real and visible impact on the political decisions

and strategic planning on Maritime Transport in Italy. It has influenced changes in the

Government’s programming process, in its governance and administrative setup and in

the projects it planned to implement in the near future.

Indeed, the current programming process at the Ministry of Transport now includes

important value-for-money considerations drawn directly from our Special Report No.

23/2016 on Maritime Transport, such as considerations about overcapacity and the

volatility of transhipment activities. In addition, recent actions undertaken by the ministry

have been aimed at better coordination of strategies and infrastructure investments in

order to avoid useless duplication of infrastructure in a country affected by overcapacity,

at achieving greater efficiency through one-stop-shops for controls and customs checks

and at concentrating investments in the ‘last mile’ connections of ports with the transport

network. Finally, the Italian Government has decided to reduce the scope of planned

big infrastructure projects that would otherwise generate overcapacity at some of the

ports visited during the audit. All these activities are very much in line with the ECA’s

recommendations on maritime transport and therefore have the potential to address

many of the observations raised in our Special Report.

The Italian Minister for Infrastructure and Transport also

wanted to recognise the relevance of our audit by inviting

me to the National Forum on Ports and Logistics in Leghorn

(Livorno), as I had participated as mission leader for Italy

and had visited the main authorities and stakeholders at

central and ports levels. The invitation listed all the actions

that the ministry had put in place after the audit work,

and the text made clear reference to the impact our audit

has had in Italy: “We

would be very happy if you could be our

speaker, considering that our encounter with you has inspired

Graziano Delrio (Minister of Infrastructure and Transport)

EUU, Alm.del - 2016-17 - Bilag 607: Rapport fra Den Europæiske Revisionsret maj 2017

We had a real impact on the political decisions on Maritime

Transport in Italy

continued

a considerable part of this work… that the recent Special Report by the European Court of

Auditors is a milestone for our political decisions, and considering how well you know the

positive and negative aspects of the Italian ports system.”.

The Forum in Leghorn (Livorno)

The Forum in Leghorn was hosted on 5 May by the Italian Ministry of Infrastructure and

Transport through its in-house company ‘RAM Spa’ and proved to be very prestigious.

Institutional keynote speakers included among others, Enrico Rossi, - the President of

the Tuscany Region -, whereas thematic speakers included representatives of national

institutions, of the OECD, the Commission and myself

. Our speeches complemented

each other and were well received by the approximately 450 participants, which included

representatives of authorities and stakeholders, and the presidents of the Italian Port

System Authorities.

The concluding speech was delivered by the Italian Minister for Infrastructure and

Transport himself, Graziano Delrio, who highlighted the opportunities deriving from

maritime transport for Italy, as a country surrounded by the sea, and the recent results

and achievements, the challenges deriving from recent developments in the maritime

transport market, the value-for-money considerations that influenced his decisions and

the opportunities and challenges ahead with the new CEF calls for proposals, the Juncker

Plan and the possibilities of blending public funds with private money.

Conclusions:

The ECA’s impact on Italian political decisions on Maritime Transport was considerable

and evident. This was certainly due to the good quality of the Special Report, but also

to the favourable timing of our audit work, which coincided with the Government’s

adoption and implementation of its new National Strategic Plan on Ports and Logistics.

This raised the Italian Government’s interest in our audit work and in the inputs it could

have provided to their programming exercise. Also the audit visits at many different ports

helped the audit team to ensure good quality work and increased the ECA’s visibility.

The above factors contributed to a frank and open discussion with the Italian authorities

and to emphasize the constructive approach of a performance audit. The invitation I

received to the Forum in Livorno was conclusive evidence of this, of the quality and

impact of our audits and of the professional fulfilment our job can provide.

1 For the full list of speakers and detailed information about the Forum, please visit

http://www.ramspa.it/

sites/default/files/ram_2017_programma_eng_superdef.pdf

EUU, Alm.del - 2016-17 - Bilag 607: Rapport fra Den Europæiske Revisionsret maj 2017

Can Plato and Aristotle help us audit in the

digital world?

Audit today: classical principles + digital tools

By Jesús Nieto, auditor in the Directorate of the Audit Quality Control

Committee

This article is based on a presentation that took place in ECA on 6 March 2017.

Auditors have an important part to play in the digital world. We can do a great deal of good

if we are dynamic and embrace digital technology. If not, we could wake up and find we are

no longer needed.

In this article we talk first about basic principles of audit: why do we audit (for the common

good) and how do we audit (by searching for the truth). Second, we briefly review the

opportunities, uses and risks of data analysis. Finally, we see that visual techniques are very

effective for data analysis and for communication.

Figure 1 - Platonic qualities

I. Concepts and principles

According to Plato, “Truth, Goodness and Beauty” are the greatest qualities an entity can

possess. Does audit have anything to do with truth, goodness and beauty?

Vítor Caldeira, former ECA president, said that “Our task is to help ensure that public

money is invested to defend democracy and safeguard the wellbeing of citizens”. In other

words, we audit for the common good.

When we audit, we are seeking the truth (evidence), investigating

what

is happening,

how

it is happening and

why

it is happening.

The

what, how

and

why

can be clearly seen (figure 2) using the knowledge pyramid

(Data, Information, Knowledge, and Wisdom). Some aspects of the reality we seek to

measure (sheep, money, etc.) are recorded on paper or computers as

data,

bare numbers

like “300”. If I know about the subject I see

information

in the data:

what

is happening,

300 sheep are in some farm). By filtering and analysing the

information,

we can extract

knowledge

(how things work: correlations) and

wisdom

(why things are happening,

causal relationships).

EUU, Alm.del - 2016-17 - Bilag 607: Rapport fra Den Europæiske Revisionsret maj 2017

Can Plato and Aristotle help us audit in the digital world?

Audit today: classical principles + digital tools

continued

Figure 2 - DKIW and Audit

How does this relate to audit? Auditing is distilling knowledge and wisdom from the

evidence hidden in a sea of information. We need to arrive to knowledge and wisdom to

add value in the form of conclusions and recommendations. If we confine ourselves to

information we are not adding value, we will remain at the “so what?” level.

It is important to remember that we audit “from the bottom up”, based on the truth. We

begin with a question about the reality and find answers based on evidence (truth). In this

aspect audit is similar to good journalism as both are truth-based. Other activities, like

advertising and propaganda, work “from the top down”, starting with a message that will

be used with or without supporting evidence.

Figure 3 - The Audit and the Data Analysis processes

EUU, Alm.del - 2016-17 - Bilag 607: Rapport fra Den Europæiske Revisionsret maj 2017

Can Plato and Aristotle help us audit in the digital world?

Audit today: classical principles + digital tools

continued

Audit today is… analysing data. How is an audit carried out? We look for

evidence

about

reality in order to analyse it to answer our questions. We do not usually examine the reality

itself but some “notes” about it on paper (bills, ledgers) now as data in files and databases.

The evidence is in that data, so the analysis becomes data analysis. In fact, the audit

process is very similar to the standard data analysis process (Figure 3).

The difference between the two processes looks small: a new database and the data

preparation. Naturally, we would call our data experts to help with this “small” data

preparation. We might also ask IT auditors to verify if the systems providing data maintain

their integrity.

In conclusion, audit today has a good deal in common with data analysis.

II. Data analysis

The opportunities for data analysis in audit can be summarised as follows:

- First, we can automate anything we want, provided we have digital information. This

includes what we currently do manually, but also what we never tried doing because it

would have taken years or perhaps we did not even dare thinking about. Now we can

dream, and for example tell a data specialist, “if I could only find out who is planning to

commit fraud…” This can be done, and it even has a name: social network analysis.

In fact, to continue auditing in the same way but digitally is not the most intelligent

approach to take. We should wholly rethink our audit plans and approaches to exploit the

digital information.

- Second, we can process entire populations. This is amazingly powerful because it uses

ALL the information spread across the entire population. This 100% processing can be

done:

a) “Item by item”: thus we can detect 100% of errors by checking the entire

population, or

b) Globally: we can look at each piece of data in the context of the entire population.

By examining one data item we see very little information, and cannot extract much

knowledge. For example, the amount of one payment (€1,500) tells us nothing about

its correctness. However, by putting that number in the context of the other amounts

paid, it may appear suspicious. This is exactly what Benford analysis does, it just uses

the context to detect anomalies!

We have already talked about verification of controls, but there are more uses for data

analysis in audit.

We can create

risk-based samples.

This is

predictive data analysis,

as it predicts the risk

of individual transactions containing anomalies. This is done with a data-mining tool that

will create a risk model using our past experiences. These models do not take account of

the causes of anomalies, only which attributes of a transaction correlate to the observed

anomalies. We do not care about the causes, only about the accuracy of the model. At the

ECA, having carried out a pilot exercise, we were able to predict with 94% accuracy which

payments contained errors.

performance audit

we need to know the causes of good or bad results in order to

recommend which positive actions to take and which negative actions to avoid. Unluckily,

data analysis does not identify cause-effect relationships

so it does not give us direct

answers. The correlations detected are possible causes that we should investigate to find

cause-effect relations.

Some analysis methods like Structural equation modelling (SEM) explore and model causal assumptions and

relationships between observed variables (collected data) and latent variables (outcomes and impacts). There

is some debate about their ability to produce validated causal conclusions.

http://ftp.cs.ucla.edu/pub/stat_ser/r370.pdf

EUU, Alm.del - 2016-17 - Bilag 607: Rapport fra Den Europæiske Revisionsret maj 2017

Can Plato and Aristotle help us audit in the digital world?

Audit today: classical principles + digital tools

continued

Figure 4 - Data analysis in performance audit

More precisely, in performance audit we look for causal correlations between inputs,

processes, influencing factors and outcomes. For example (see figure 4) between “EU

funding” as an input and “landfill reduction” as an outcome. We would expect to find that

more money correlates with greater landfill reduction. However, we see on the chart that

there is no such correlation, i.e. money is not a possible cause of landfill reduction, which

happened in several countries. What we can see however, are good and bad results, the

causes of which we should investigate in order to recommend what to do and what avoid

doing.

Data analysis involves some risks. Three of which are:

1) Data analysis uses IT, which tends to become complex. That small task “data preparation”

is not trivial. In fact, in a typical data analysis project, data preparation and model testing

are 80% of the work. This risk of “unexpected complication” can cause delays and overruns

in costs.

2) Another risk, more important because it can lead to erroneous results, is not having in-

depth knowledge of both the audited area and the data. The team needs to master both

the “business” (i.e. the audited area) AND the details and semantics of the data. Auditors

and data experts must work in coordination to integrate both sources of knowledge. If

that coordination is imperfect, the results might be erroneous. One recent example in

Spain, was where a false error was detected which indicated the payment of thousands of

pensions to deceased people. The mistake originated in an imperfect occurred in respect

of “data cleaning”, which forgot that Spanish ID numbers are unique but “only among

living Spaniards”, as the ID numbers of deceased citizens are “recycled”.

EUU, Alm.del - 2016-17 - Bilag 607: Rapport fra Den Europæiske Revisionsret maj 2017

Can Plato and Aristotle help us audit in the digital world?

Audit today: classical principles + digital tools

continued

Figure 5 - Statistical indicators collapse the information

3) The third risk is in “collapsing” the information. Statistical indicators or “summary

statistics” (means, standard deviations, correlations, etc.) collapse the information spread

across the entire population. Data analysis based only on statistical indicators can be

really poor, if not misleading, because it ignores the richness of the information spread all

over the entire population. It could be compared to attempting to study the nature and

characteristics of chickens with only chicken stock cubes as a data source.

The effect of “information collapse” is normally illustrated using Anscombe’s Quartet,

which shows four completely different populations with exactly the same statistical

indicators (mean, standard deviation and correlation). If we only use the indicators we

would think they are ONE, the first shown in Figure 5. However, if we visualise the four

populations, we see that they are completely different. This is because visually we can

perceive all the information spread over the population.

In conclusion, we have to visualise the data.

III. Visualisation

The human mind works according to two different “systems”

, which use different parts of

the brain:

System 1 does perception,

is fast, uses little glucose, and operates unconsciously and in

parallel. This system includes vision.

System 2 does reflection,

is slow, uses plenty of glucose, and operates consciously and

sequentially, requiring attention. This system includes reading.

How do we audit? By reading and thinking, so using System 2.

Could we audit “using the 100% of the brain”? Yes, using visual data analysis!

2 Here we offer a very simplified version of them. For a complete description we recommend reading:

Thinking, Fast and Slow by

Daniel Kahneman and

Mastermind: How to Think Like Sherlock Holmes

by Maria

Konnikova.

EUU, Alm.del - 2016-17 - Bilag 607: Rapport fra Den Europæiske Revisionsret maj 2017

Can Plato and Aristotle help us audit in the digital world?

Audit today: classical principles + digital tools

continued

Visual data analysis

works by using data visualisations of the data that System 1

will perceive and that System 2 will use to think, using the auditor’s experience, and

distinguish between normal and abnormal. What System 2 is doing is using a model in the

auditor’s brain without the need of a data-mining tool.

This is cheap, simple … and it works!

Carlos Soler, team leader at the European Court of Auditors, audits EU customs. In the

past the audit team used random samples: a few samples for every million customs

declarations, which on examination were found never to contain errors or fraud. A few

years ago, Carlos experimented by creating a risk-based sample with visual analysis. The

tools he used were (a) visual representations: scatter plots with one dot for each customs

declaration, showing weight (X) and declared value (Y), with filters for imported goods,

country of origin and destination country; and (b) his brain, with his experience and

knowledge of the sector.

In each scatter plot (see Figure 6), Carlos selected shipments (dots) that seemed too cheap

compared to the rest of the sub-population (same type of goods, origin and destination).

Figure 6 - Visual risk based sampling

EUU, Alm.del - 2016-17 - Bilag 607: Rapport fra Den Europæiske Revisionsret maj 2017

Can Plato and Aristotle help us audit in the digital world?

Audit today: classical principles + digital tools

continued

One of the declarations in the sample had been detected by “Operation Snake” (a joint

OLAF-China fraud detection operation) and was linked to suspected fraud of around

€ 20 million. Furthermore, Carlos’s entire sample comprised of “hits” –that is, all the

declarations were erroneous or fraudulent. What an impressive result by just “selecting

coloured dots”!

We could stop there, with that near-magical result. Or could we do more with

visualisations? Yes, we can also improve our communication.

We can create attractive, attention-grabbing reports that are also convincing to readers.

We can do this by using beautiful AND effective images to draw attention and convey our

messages. To explain and convince, images must be carefully designed. This is far more

than graphical design: it requires

conceptual design,

thinking first “what do I want to

tell?”, and then creating effective images to explain it.

To achieve this we can use various types of images: data visualisations (graphs), diagrams

(infographics) and photos. With all them we can explain the information, knowledge and

wisdom contained in the text of our reports.

IV. Conclusions

Audit is related to truth, goodness and beauty. We audit to do good and we audit by

searching for the truth.

Today, audit means data analysis. We have to use the opportunity of processing entire

data populations and thus miss no information.

To analyse data, audit teams need in-depth knowledge of the audited area and the details

of the data. Auditors play a vital role in data analysis and must work closely with data

experts.

Visual techniques enable us to exploit the skills of the human mind. Visual data analysis

is cheap and effective. Furthermore, well-designed, beautiful and effective visualisations

make reports attractive and convincing.

Thus, by seeking the

truth

and using

beauty,

we help to do

good

by ensuring that public

money is used to safeguard the wellbeing of citizens and to defend democracy.

EUU, Alm.del - 2016-17 - Bilag 607: Rapport fra Den Europæiske Revisionsret maj 2017

ISSN 1831-449X

EDITION HIGHLIGHTS

Interview with Commissioner Phil Hogan

Malta’s Minister for Finance talks about the

priorities of the Malta EU Presidency

Bank resolution in Europe – Preparing for the

ECA’s first performance audit obligation

A real impact on the political decisions on

Maritime Transport in Italy

Cover:

- Priorities of the Malta EU Presidency: Leo Brincat, ECA Member; ECA President Klaus-Heiner Lehne;

Minister for Finance Hon. Prof. Edward Scicluna

- Commissioner Phil Hogan (2014 – 2019) is responsible for Agriculture and Rural Development

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