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Siim Kallas

Vice-President of the European Commission responsible for Administrative Affairs, Audit and Anti-Fraud

Presentation of the European Court of Auditors' Annual Report for 2007

Committee on Budgetary Control, European Parliament
Brussels, 10 November 2008

Mr President, Mr Chairman,

Cher rapporteur,

Ladies and gentlemen,

2007 was a special and challenging year for a number of reasons.

It is the last discharge year for this Commission's mandate, and the last discharge to be decided by this Parliament.

It was the first year under the revised financial regulation, and the first year of a Union of 27 member states.

And 2007 was also the first year under the new financial programming period, while many payments still relate to the previous period, 2000–2006.

The Commission welcomes the Court's annual report and thanks the Court for all the work done during the year.

I would like to underline the very constructive cooperation we have enjoyed with the Court. We have had a very fruitful dialogue, and the Commission considers the resulting report to be a fair and balanced view of the achievements and remaining weaknesses.

The format of the report, now matching the new budget structure, gives us very specific indications of areas where we need to make further progress.

There's one piece of really good news in the report for all of us: The Court has given the EU's accounts a completely clean bill of health — what auditors call an "unqualified opinion". The reservations from previous years are all gone, and this is really a remarkable achievement in only the third year of the Commission's modernised accruals-based accounting system.

During recent weeks, it's been said about the accounts of some major private institutions that on the right side, there is nothing left, while one the left side, there is nothing right!

I hope everyone will help to communicate the facts that the EU's books are in order — our figures in the balance sheet are reliable.

On transactions, the picture remains more mixed, or colourful if you wish.

This first slide shows the results of the Court's field work. This presentation differs slightly from the table in Chapter 1 of the Court's report, but there is no difference of opinion. We draw on the information given by the Court in that chapter, and we show the error rates in the European Agricultural Guarantee Fund (EAGF) separately from those for the remainder of natural resources. The EAGF is the largest volume of agricultural expenditure, and the Court recognises that this year again the error rate for this area is below the 2% materiality level. So this very large spending area is in fact still "green".

Let me also note that for some of the areas that are still "yellow", the Court does note improvements.

This is true for external aid, internal policies, such as transport, energy, as well as education and citizenship. These areas are in direct management by the Commission, which may partly explain why efforts undertaken have a more immediate impact.

For "cohesion funds", the Court's verdict remains negative, as there are still far too many errors. As President Caldeira explained, structural projects are often complex, which makes errors more likely to occur.

Complexity is no excuse — we made the rules together. So we either manage better together, with the Member States, or we simplify things together.

President Caldeira makes a convincing case for simplification, and future legislative changes must bring simpler rules.

Until then, things on the ground must improve and must do so quickly. As President Caldeira notes, weak systems and controls in Member States cannot be compensated by the Commission's supervision.

The Commission is fully aware of the urgency of reducing this error rate, and is giving the highest priority to implementing its action plan on Structural Funds control. Last week, my colleagues Commissioners Hübner and Spidla reported to College that this work is on track. Ms Hübner will update this committee on progress made at her hearing in January.

But let me just highlight the strengthened efforts, undertaken by the Commission in 2007 and 2008 to increase audit efforts in this area, and to follow up on any errors or deficiencies found by the auditors or by our own controls.

The Commission is not shying away from taking a tough stance. Already in 2007, a substantial amount of undue payments were recovered in structural funds — some EUR 396 million. In 2008 so far, the Commission has already imposed financial corrections on the ERDF and ESF for EUR 843 million and an estimated EUR 1.5 billion more is in the pipeline.

On this second slide, you see the Court's recognition that we are strengthening our supervision — the Court's assessment of the supervisory and control systems for structural funds has moved from "red" to "yellow".

In fact, in 2007 for the first time, there is not a single chapter with a "red" light on control systems. To a large extent this is thanks to the improved assurance given by our directors-general in their annual activity reports, the internal control standards, and the action plan on an integrated control framework.

The Court recognises these efforts, even if results are not yet translated into significantly reduced error rates in the structural funds.

This final slide gives the overview of progress since 2003. It shows a steady, gradual and laborious progress. Let me remind you that as far as errors in the underlying payments are concerned, the bar is set very high. At least 98% must be error free to get a "green" light. Still, we are getting close: the auditors now say that for all budget areas but one, as much as 95% or more of the payments are free from serious financial error.

When will it all be "green", you might ask?

As you can see from the slide, we have already come a long way. The 2007 DAS is in fact 46% positive. And, I recall, the opinion on the accounts is unqualified. So this year's report is not more of the same! It is an improvement on last year, for a year of higher payments, in an increased number of Member States, the EU of 27. We are improving, even as an already challenging task is steadily growing.

Still, as I predicted here in the committee on 8 September, we do not have a positive DAS. But looking at the progress made, I repeat that the Commission has absolutely no regrets about having set this target, nor do we intend to drop it. We will strive on, hoping for continued support from the European Parliament.

Beyond the action plans and various measures to disclose data on EU funds' recipients under the European Transparency Initiative, we will soon attempt to re-launch the discussion on the tolerable rate of error. This would begin to address some of the very important concluding remarks made by President Caldeira. I hope for fruitful discussions during the discharge procedure, and would Iike to repeat that I am always available to answer your questions.

Slide 1

[ Figures and graphics available in PDF and WORD PROCESSED ]

Slide 2

[ Figures and graphics available in PDF and WORD PROCESSED ]

Slide 3

[ Figures and graphics available in PDF and WORD PROCESSED ]

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