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Financial management in the European Union

A report today from the National Audit Office summarises the results of the European Court of Auditors’ examination of the European Union’s accounts for 2007 and progress on the range of initiatives taken forward by the Commission and Member States. For the first time the Court provided a positive Statement of Assurance, without qualification, on the reliability of the Commission’s accounts, in effect confirming that they give a true and fair view. But for the fourteenth successive year the Court did not provide a positive Statement of Assurance on whether the underlying transactions conformed to applicable laws and regulations.

Cohesion Policy funds, which are designed to reduce disparities in the level of development between regions and Member States, for example by supporting major infrastructure projects, remain the most challenging component. Based on its audit work, the Court estimates that, for expenditure on Cohesion projects, at least 11 per cent should not have been reimbursed by the Commission in 2007. This conclusion reflects weakness in controls at Member State level, but also the difficulty of implementing complex programmes.

In the Cohesion Policy area the Commission has increased the rate at which it recovers incorrect payments from Member States, from €287 million in 2007 to €843 million to September 2008, and it predicts that further corrections will be finalised in Spring 2009. Financial corrections in future years could have an impact on the United Kingdom.

The Department for Environment, Food and Rural Affairs included provisions totalling some £320 million in its published accounts for 2007-08 as an estimate for potential financial corrections in future years. The Department for Communities and Local Government, which is responsible for expenditure on the European Regional Development Fund in England, included a provision of £72.9 million in its published accounts for 2007-08 to cover potential ineligible grant payments which could be subject to financial corrections by the Commission.

"Recent initiatives have started to improve the financial management of EU funds, but a positive Statement of Assurance on the legality and regularity of expenditure has yet to be achieved. The implementation of Cohesion policy remains the chief source of error. The Commission will soon start work with Member States on the design of future programmes. This work presents a good opportunity to simplify some of the rules whose complexity is contributing to error in EU spending."

Tim Burr, head of the National Audit Office

Notes for Editors

  1. The European Court of Auditors is the external auditor of the European Community. The Court reports annually on its findings on the management of Community funds. It also provides an annual Statement of Assurance on the reliability of the Community’s accounts and the legality and regularity of the underlying transactions. The Court is made up of one member from each Member State.
  2. EU expenditure in 2007 was some €114 billion (£78 billion), with €6.1 billion (£4.2 billion) in net UK contributions – the second highest after Germany.
  3. The Annual Report of the Court of Auditors concerning the financial year 2007 was published in the Official Journal of the European Union on 10 November 2008.
  4. Press notices and reports are available from the date of publication on the NAO website, which is at www.nao.org.uk. Hard copies can be obtained from The Stationery Office on 0845 702 3474.
  5. The Comptroller and Auditor General, Tim Burr, is the head of the National Audit Office which employs some 850 staff. He and the NAO are totally independent of Government. He certifies the accounts of all Government departments and a wide range of other public sector bodies; and he has statutory authority to report to Parliament on the economy, efficiency and effectiveness with which departments and other bodies have used their resources.

PN: 22/09