Algirdas Šemeta EU Commissioner for Taxation and Customs Union, Audit and Anti-Fraud "Speech on Court of Auditor's Annual Report " European Parliament - Committee on Budgetary Control Brussels, 9 November 2010

Source: European Commission (EC) i, published on Tuesday, November 9 2010.

Dear President Caldeira, Chairman, Mr Rapporteur, Honourable Members of this Committee and of the Court of Auditors,

The Court's report and the Commission's replies result from a long, intensive and fruitful dialogue between the auditor and the auditee. I would like here to thank President Caldeira, the Members of the Court and their services for this excellent cooperation.

The Court's annual report contains many conclusions and recommendations for all EU policies. It is not only an independent and professional assessment of the financial actors' performance but also a valuable input from which the Commission will draw lessons for the future design of the EU policies and their reflection in the EU budget.

I am pleased with the Court of Auditors independent recognition of progress made in managing the EU budget.

I see indeed many positive messages in the report. I also see some criticism and it is of course the Commission's and my personal commitment to closely follow-up on the all recommendations put forward by the Court.

Let me reply to the main messages of the Court's report which are key for the Commission's own assessment of the way it assumes its responsibility in managing the EU budget.

First, the annual accounts receive for the third year in a row an unqualified positive opinion. The Court has evaluated the EU accounts as giving a true and fair view, without any reservation. The Commission is of course very satisfied with this result as it confirms the lasting effects of our accounting reform.

In particular, the accounts provided for 2009 more information on the financial corrections and recoveries process, as requested by your Committee following the Court's recommendations.

But the Court rightly highlights certain weaknesses (e.g. concerning the clearing of pre-financing during the year; the prompt registering of invoices; data quality of some local systems).

While none of these affects the Court's unqualified opinion, the Commission is determined to address these issues and therefore continue to improve its day-to-day accounting practices.

While on this subject, I would also like to point out the key figures and elements of these 2009 annual accounts:

  • - 
    There was a budgetary surplus of EUR 2.26 billion, slightly higher than the previous year, mainly due to under implementation of expenditure across many areas, the most significant amounts being for the Instrument for Pre-adhesion (IPA) (EUR 274 million), and the European Social Fund (EUR 244 million);
  • - 
    Looking at the balance sheet, we see an increase in loans given and borrowings outstanding of EUR 7.2 billion due to the Balance of Payment loans disbursed during 2009; these are back-to-back operations, with no impact on the economic result or net assets;
  • - 
    Pre-financing amounts increased by EUR 9.5 billion primarily due to the third tranche of the Structural Fund payments for the period 2007-2013. Total pre-financing is now EUR 48.8 billion;
  • - 
    The employee benefits liability fell slightly to EUR 37.2 billion - the main reason being a decrease in the estimated staff salary growth rates.

With regard to the legality and regularity of transactions, I am pleased that the positive trend in the reduction of the overall error rate has continued in 2009.

As President Caldeira said earlier, revenue, commitments for the entire budget, and payments related to Economic and Financial Affairs, Administrative expenditure and EDF are legal and regular in all material respects.

There is also a positive trend in the reduction of errors noted by the Court for Research, Energy and Transport.

In Agriculture and Rural Development, the error rate oscillates around 2% over the years. The risks identified by the Court are known and are being addressed by the Commission.

They are adequately covered by the conformity clearance procedure which is designed to exclude expenditure which has not been paid in conformity with EU rules from EU financing.

As regards the other policy groups, the Commission notes that the error rate for Education and culture oscillates also around 2% and that progress has been made in External Aid, Development and Enlargement where the error rate remains between 2% and 5%.

For the first time ever, the Court estimates that the most likely error rate across the budget lies between 2% and 5%. This means that more than 95% of payments are free from error. You will agree with me that this verdict is a positive sign that our efforts to further improve control are having a concrete impact.

This positive result has been achieved mainly thanks to a substantial reduction of the error rate in Cohesion. Concretely, this progress reflects the merits of a more rigorous approach in either interrupting or suspending payments where problems were identified.

It also results from the effectiveness of a thorough compliance assessment procedure, which does not allow the reimbursement of interim payments until Member States' systems are validated by the Commission.

That said, I fully share the caution of President Caldeira when he warns for possible oscillations of the error rate in Cohesion in the future.

However, the Court's assessment indicates that the new control and management systems under the 2007-2013 financial period are more effective than the previous arrangements in controlling the risks of errors and reducing the actual error rate on an annual basis.

In its report, the Court stresses the importance of getting reliable information about financial corrections and recovery.

The Court recognizes that the quality of the information about recoveries, which, as disclosed in the accounts, "has greatly improved".

The increase in the value of funds recovered from projects where errors were found, or from national authorities responsible, is another sign of this Commission's determination. Recoveries and financial corrections confirmed or decided in 2009 rose to EUR 3.3 billion.

But I agree with the Court when it points out the weaknesses of Member States' systems in reporting their corrections to the Commission and when it comes to recover from final beneficiaries.

In my view, the way forwards includes the design of cost-effective control mechanisms, the simplification of eligibility rules where their complexity is an obvious source of errors and the improvement of the quality and reliability of the information provided by the Member States regarding financial corrections and recoveries.

The latter is only one element of the reinforced cooperation and involvement of Member States in the implementation of the EU budget which I do promote in accordance with the new obligations defined in Article 317 of the Treaty on the Functioning of the European Union.

But this is not enough.

My conviction is that the financial actors should focus more their efforts on ensuring the quality of spending.

The performance of a programme should not be assessed only against the respect of eligibility rules. It is also and primarily about the impact of the EU action and its added-value for our citizens and businesses.

Therefore, in preparing the Budget Review, I have promoted the new focus on "impact" rather than "input", through the definition of clear and measurable objectives and key performance indicators to monitor the progress and evaluating the impact of our actions.

Honorable Members of this Committee and of the Court of Auditors, we need to follow-up on these positive results and to make further efforts to address weaknesses identified by the Court and the Commission itself.

With this in mind, last May I presented to you my agenda on discharge, audit and anti-fraud for 2010-2014.

This agenda outlined the key strategic objectives and concrete steps the Commission will take to move further towards a positive DAS. In the light of the Court's 2009 Annual Report, I can confirm that this agenda remains fully relevant for our future actions.

To conclude, I am pleased that 2009 annual report corroborates that our efforts bear results. It constitutes an important and timely input to our reflexion towards a more effective and efficient financial management of the EU budget which should guide us in preparing the next generation of programmes.

Ladies and Gentlemen, thank you for your attention.