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Head of the National Audit Office Sir John Bourn today reported to Parliament on developments in the financial management of European Union funds. His report summarises the main findings of the latest Annual Report by the European Court of Auditors, which covers the management of the General Budget of the European Union for 2002. Sir John’s report also highlights some key, recent developments in the financial management of the European Union.

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For the ninth year in succession the Court of Auditors qualified its opinion on the reliability of the European Community’s accounts. The Court again found weaknesses in the Commission’s accounting systems, particularly regarding the disclosure and valuation of assets and liabilities. The Court also found a material rate of error in the payments in four of the six major expenditure areas – agriculture, structural measures, internal polices and external action – which together make up over 90 per cent of expenditure. However, some progress has been made by the Commission, in that the Court was able for the first time to give positive assurance in the area of Pre-Accession Aid.

Since March 2000, following the resignation of the previous Commission in March 1999, the European Commission has been pursuing a substantial reform programme. From the beginning one of the key aims has been to improve the Commission’s accounting system. The Commission has subsequently decided to produce accruals based accounts in line with best international practice. In its latest Annual Report the Court noted the work done by the Commission in its reform programme, but described its timetable, for introducing the full accruals based system by 1 January 2005, as ‘over-ambitious’. Sir John’s report endorses this finding, and emphasises the importance of the successful implementation of these changes.

Sir John notes that Member States notified the European Anti-Fraud Office of just over 10,000 cases of irregularity and suspected fraud in 2002, with a value of £700 million. The number of cases was some 84 per cent higher, and the value of cases some 96 per cent higher, than in 2001, when there were 5,482 cases, with a value of £365 million. In the Commission’s view, much of this increase was due to Structural Fund projects for the period 1994-1999 coming to a close and final expenditure claims being checked in detail. Because of this and also because of inconsistency in the reporting of fraud and irregularity by individual Member States, it is difficult to assess whether the level of irregularity and fraud is improving or worsening year on year despite these figures for 2001 and 2002.

Following the enlargement of the European Union on 1 May 2004 with the accession of ten new Member States – Cyprus, the Czech Republic, Estonia, Hungary, Latvia, Lithuania, Malta, Poland, the Slovak Republic, and Slovenia – there will be even greater attention paid to the use that the EU makes of its resources. Sir John’s report makes clear that the UK National Audit Office is committed to playing a full part in this process.

Sir John Bourn said today,

“My report draws attention once again to continuing problems in the management of European Union funds. It is a matter of concern that, for the ninth year in succession, the Court of Auditors has qualified its opinion on the reliability of the accounts. I endorse the Court’s view that this situation is unlikely to improve until the Commission has completed the reform of its accounting policies and IT systems. I therefore support the work the Commission is undertaking to remedy these weaknesses, though I agree with the Court that the timetable for reform appears over-ambitious.

“Given the pace of current developments in the European Union, public interest in the EU’s use of resources will inevitably increase. The National Audit Office will play a full part in Parliamentary scrutiny of the European Union. We will also continue to work closely with the European Court of Auditors and the audit offices of the other twenty-four member countries to protect European Union funds.”

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