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Sir John Bourn, the Head of the National Audit Office, today reported to Parliament on the need to strengthen the financial management of European funds and tackle fraud and irregularity, and on the far-reaching programme of reform that the European Commission is seeking to implement over the next two years.

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Sir John’s report highlights the main findings of the latest Annual Report by the European Court of Auditors (the Court) which was published in November 1999 and covered the management of the General Budget of the European Union for 1998. The Commission has overall responsibility for implementing the Budget of nearly £60 billion, but around 85 per cent of expenditure is managed by the 15 Member States.

For the fifth year in succession the Court found significant weaknesses in the management of the Budget and an unacceptably high rate of error in the transactions underlying payments. The Court indicated that the amount of error was similar to that found in previous years. This means that there may have been errors totalling around £3 billion in the payments made in 1998. Sir John concludes that it remains a matter of serious concern that the Court once again declined to provide a positive Statement of Assurance on the legality and regularity of the transactions underlying payments. The Court also again had a number of qualifications to its opinion on the reliability of the accounts of the Community.

In his report, Sir John draws attention to a number of the Court’s findings and makes recommendations aimed at addressing particular weaknesses in the management and control of Community funds. These include:

  • it is important for the Commission to press on with putting in place clear accounting policies to improve the reliability of the Community’s accounts and the quality of financial reporting – the Court had a number of qualifications relating to the reliability of the accounts, concerning inaccurate or incomplete disclosure of fixed assets, debtors, commitments and provisional payments.
  • the high rates of error found in expenditure on the Structural Funds (principally the European Regional Development Fund and the European Social Fund) and on research and development are unacceptable. The Commission and Member States need to act urgently to reduce the rate of error and strengthen control in these areas.
  • it is far from clear that the Court will be able to provide positive assurance on the transactions underlying payments until there is substantial simplification of many Common Agricultural Policy and Structural Fund schemes. The Commission has already taken steps in this direction, and further simplification would be desirable and help to minimise the risk of fraud and irregularity.

Sir John notes that the Commission and Member States, including the United Kingdom, are taking action to improve the management of Community funds. In particular, he reports on the major developments that have occurred in the last year since the resignation of the previous Commission in March 1999. Last month the Commission approved the strategy for reform and modernisation developed by Commission Vice-President Neil Kinnock. The reforms include a radical overhaul of financial management and control systems aimed at creating a culture where managers take responsibility and are accountable for their actions. Implementation of the proposals would be a significant step forward in the management of European funds.

The reform strategy picks up many of the concerns which were raised by the Committee of Public Accounts in its report published last August. The Committee carried out a fact-finding visit to Europe in April 1999 and concluded that fundamental changes were needed to bring about long overdue improvements in standards of financial management and accounting to reduce levels of waste, error and fraud in Community expenditure.

"It is important that the United Kingdom Government, through the Council of Ministers and its other links with the Community, continues to seize all opportunities to facilitate and support the Commission’s far-reaching programme of reform to ensure that its impetus is maintained and improvements in financial management are secured. The National Audit Office will continue to give a high priority to examining the way that United Kingdom departments manage Community funds in the future and to co-operating with the European Court of Auditors."

Sir John Bourn

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