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Brussels, 16 November 2004

Court of Auditors’ report for the year 2003: Frequently asked questions

What is the discharge?

The Treaty (art. 276) foresees that the “European Parliament, acting on a recommendation from the Council which shall act by qualified majority, shall give a discharge to the Commission in respect of the implementation of the budget”.

To this end, the discharge authority is obliged by the Treaty to examine the accounts and financial statement, the annual report by the Court of Auditors including the statement of assurance, and any relevant special reports by the Court of Auditors.

In reality, the annual report by the Court of Auditors is the main input to the discharge procedure.

The Treaty does not foresee any specific actions in the case where the Parliament decides not to grant discharge, i.e. there is no legal obligation for a Commission to step down. However, if discharge is not granted, a serious political situation arises. The non-granting of the discharge for 1996 initiated the process which led to the fall of the Santer Commission.

What is the content of the annual report by the European Court of Auditors (ECA)?

The annual report has developed considerably over the years. The 2003 annual report includes chapters on the statement of assurance (or the DAS = déclaration d’assurance as it is called in French), budgetary management, own resources along with chapters for each of the main areas of the budget (agriculture, structural actions, internal policies, external actions, pre-accession aid and administrative expenditure). The report also includes a chapter on financial instruments and a report on the EDF.

The main results of any special reports published by the Court of Auditors during the year are integrated in the relevant chapters.

The Court of Auditors has with its annual reports for 2002 and 2003 made a significant effort to improve the presentation of its results concerning each of the main areas of the budget. This is in line with the Nice Treaty (art. 248) which introduced an obligation for the Court to provide “specific assessments for each major area of Community activity” besides the traditional statement of assurance.

The Court includes recommendations to the Commission on how to improve management. These recommendations are each year followed up by the Commission in an action plan.

What is the statement of assurance (DAS in its French acronym)?

As stated in the Treaty (art. 248), the Statement of Assurance (or the DAS as it is mostly called) is an assessment of the “reliability of the accounts and the legality and regularity of the underlying transactions ...”.

The DAS has existed since 1995 (covering the financial year 1994) and has in general been positive as to the reliability of the accounts and the legality and regularity of commitments (for the budget as a whole). However, a positive statement has in general only been made for part of the payments (own resources, administrative expenditure).

Though no complete equivalent exists in Member States, no national court of auditors gives assurance unreservedly for all government departments every year.

The DAS is not the discharge. Even if the Court of Auditors does not deliver a fully positive DAS, the discharge can be and has been given.

How is the DAS established by the Court?

In 2001 the Court introduced a new approach based on a more qualitative and systemic evaluation of the Commission’s management. The Court’s overall assessment is no longer only based on checks of a limited sample of transactions. The Court, now, also examines the operation of internal control systems, examines the declarations by the Directors-general and uses other auditors' findings. This new approach is intended to make it possible for the Court to assess the management and control systems in place.

The Commission welcomes this new approach which makes it possible to do a more detailed analysis of the quality of Community management and is in better conformity with the thinking underlying the financial management system as introduced with the recent Commission reform. It also provides the Commission with better guidance as to corrective measures that could be undertaken.

The Commission hopes that the Court will be able to apply this new system in a way that avoids the problems of the past arising from unsubstantiated extrapolation of audit findings.

The Commission is eager to discuss any further development in the Court's audit methodology. E.g. how can the method be developed further in order to take into account the multi-annual nature of many EU programmes.

Is the DAS negative for the year 2003?

The DAS is positive for the reliability of the accounts, commitments, and payments in the areas of own resources and administrative expenditure. The Court of Auditors has made reservations for the remaining payments concerning agriculture, structural measures, internal policies, external actions and pre-accession aid.

The DAS is positive on all points for the European Development Fund (EDF).

This is the same picture as in the 2002 annual report with one exception: In the 2002 annual report, the payments for pre-accession aid also received a positive assessment. However, this year, the Court considers that the level of errors found in the area of pre-accession aid is material and it can therefore not give a positive statement for 2003.

Despite the developments in the Court’s DAS methodology, the overall assessment for 2003 is not fundamentally different from earlier years.

Who is responsible for implementation of the budget?

As the Treaty states (art. 274), “The Commission shall implement the budget, ..., on its own responsibility... Member States shall cooperate with the Commission..”. This means that the Commission is responsible for the implementation of the budget although in reality more than 80% of the budget is managed jointly (“shared management”) by the Member States and the Commission.

The other institutions only manage the administrative expenditures relating to their own functioning.

In the 2003 annual report, the Court underlines the need to improve supervisory systems and controls within the areas of shared management in order to reduce the underlying risks.

What is the timetable for the discharge 2003?

The Court of Auditors will present the 2003 annual report in the Parliament’s Committee on Budgetary Control (COCOBU) on 15 November, in the Council’s Budget Committee on 17 November, in the ECOFIN on 25 November and in the plenary of the Parliament on 2 December. The presentation of the annual report in COCOBU launches the discharge procedure.

The ECOFIN Council will make its recommendation in March 2005 to the European Parliament. The Parliament will vote on the discharge for the general budget (operational expenditure only), the Parliaments own budget, other administrative expenditure, agencies and the EDF in April 2005. If discharge is postponed in April, a new vote shall take place in October 2005.

When the Parliament has decided on the discharge, the Commission carries out a follow-up of all recommendations in the accompanying resolutions. The Commission presents its reactions to the recommendations in a report which is sent to the Parliament and the Council. This year, the follow-up on the 2002 discharge was presented in a report sent to Parliament in September 2004.

Who are the Parliament rapporteurs?

The rapporteurs for the 2003 discharge are:

  • Terry Wynn (PSE, UK): Commission operational expenditure
  • Ona JUKNEVICIENE (ALDE, LIT): Parliament
  • Alexander STUBB (EPP, FIN): Other administrative expenditure
  • Inez AYALA SENDER (PSE, SPA) + Carl SCHLYTER (Greens, SWE): Agencies

When will the Commission obtain a positive DAS?

It is up to the Court of Auditors to judge the reliability of the accounts, as well as the legality and the regularity of the underlying transactions. The establishment of the DAS falls within the Court’s competence alone. The Commission cannot pledge to receive a positive DAS from the Court of Auditors within a specific deadline.

However, the Commission is aware that improvements are needed – particularly within the area of shared management. The declarations made by the Directors-General in the 2003 Annual Activity Reports show that it is still necessary for the Directors-General to make significant reservations concerning the management and control systems in (some) Member States and/or acceding countries.

In light of this, the Commission has taken initiative to improve systems and controls, e.g. with the new legislative package linked to the 2007-2013 Financial Perspective. The aim is to introduce instruments – such as contracts of confidence in the area of structural funds – which can give the Court the necessary assurance that systems are well conceived and well implemented and thus ensure that transactions are legal and regular.

What is single audit?

Following up on a request made by Parliament in the 2000 discharge, the Court of Auditors published an opinion no. 2/2004 in April this year on single audit. In its most pure form, single audit means that bodies receiving more than one grant will only be subject to one annual audit instead of being audited by different auditors for each grant received. However, in its opinion, the Court goes somewhat further and proposes the introduction of a Community Internal Control Framework.

The basic concepts of the Community Internal Control Framework are:

  • Control systems should provide reasonable – not absolute – assurance and strike a reasonable balance between costs and benefits.
  • A chain-based model should be applied to areas of shared management with three levels of basic controls in Member States and supervisory control at the Commission level. Each level ensures that the level below is functioning appropriately.
  • Checks of transactions should be undertaken, recorded and reported following a common standard. Results should be available to others in the control chain.

Neither the Parliament nor the Council has given an official reaction to the Court’s opinion. However, it is expected that the issue of single audit will be discussed during the discharge procedure.

What is the RAL?

The RAL is outstanding commitments, i.e. funds have been committed to a purpose but the related payments have not taken place. RAL is a natural phenomenon for multi-annual programmes. The typical example is structural funds where it may take several years from the start of a project - where funds representing the value of the project are committed and an advance payment can be made - to the final payment and closure of the project. For structural funds, it is natural that RAL increases significantly in the first part of a programming period and thereafter drops as more payments are made.

In the 2003 annual report, the Court of Auditors notes that the RAL for structural funds relating to the programming period 2000-2006 is relatively higher than was the case at the same moment of the previous programming period.

The Commission underlines that a high level of RAL is natural at this point in time. It should be noted that payments within structural measures have picked up so much during 2004 that the Commission has found it necessary to request the budget authority to increase available payments for this purpose by a further EUR 3.4 billion in the 2004 budget.

The budget authority (Parliament and Council) is expected to take a decision on this issue on 25 November. Finally, it should be noted that the risk of reaching an unmanageable level of RAL has been reduced in the 2000-2006 programming period due to the introduction of the so-called “N+2 rule”, i.e. commitments can now lapse.

Please see also our press release of today, IP/04/1361.

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