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Today Sir John Bourn, head of the National Audit Office, 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, published in November 2004, which covers the management of the General Budget of the European Union for 2003. Sir John’s report also highlights some key, recent developments in the financial management of the European Union.

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While the Court of Auditors qualified its opinion on the reliability of the European Community’s accounts it did so for only one item rather than four for the 2002 financial year. The Court noted, as it had in previous years, that the Commission’s accounting system was subject to weaknesses which could not record all assets. From 1 January 2005, the Commission introduced an accruals based accounting system and associated IT. Early reports from the Commission indicate the transition to the new accounting system is progressing successfully. The new accounting system is an important part of the Commission’s programme of reforms to strengthen financial management following the resignation of the previous Commission in March 1999.

The Court also concluded that the transactions underlying revenue, commitments and administrative expenditure were legal and regular. However, it qualified its opinion on the payments for the Common Agricultural Policy, Structural Measures, internal policies, external actions and pre-accession aid. The majority of errors found by the Court were also at the level of the Member States.

Sir John’s report highlights some areas of progress at the Commission identified by the Court. For example, he welcomes the progress made by the Commission on the design of the new internal control framework and that it took steps during 2003 to improve the accountability reports produced by each Directorate General.

Sir John notes that Member States notified the European Anti-Fraud Office (OLAF) of just over 8,000 cases of irregularity and suspected fraud in 2003, with a value of £644 million. The number of cases and value of cases were both some 20 per cent lower than in 2002, when there were 10,276 cases, with a value of £806 million. During 2003, the United Kingdom notified the Commission of 922 cases. As in previous years, it is difficult to assess precise levels of irregularity and potential fraud due to inconsistency in the reporting of fraud and irregularity by individual Member States. OLAF is currently taking steps to identify the levels of fraud in individual sectors of the budget.

Following the enlargement of the European Union on 1 May 2004 with the accession of ten new Member States, the Commission is now negotiating accession with Bulgaria and Romania. Negotiations with Croatia will commence on 17 March 2005, and the Commission has agreed to enter into negotiations with Turkey. The United Kingdom National Audit Office is committed to playing a full part in assisting new Member States with accession preparations.

“While I am concerned that the Court has qualified its opinion on the accounts of the European Union for the 10th year in succession, I am pleased to see that the Commission has made progress in a number of areas. For example, the new accruals based accounting system introduced on 1 January 2005 presents a good opportunity to move towards an unqualified opinion. I am also pleased that the Court was able to identify progress with regard to other aspects of improved financial management, which the Commission seems intent to build on.

“The United Kingdom’s Presidency of the European Union, in the second half of 2005, provides a further opportunity for the United Kingdom authorities to continue to push for improvements in the financial management of the European Union, both during its Presidency and beyond. We will continue to work closely with European Institutions and the state audit institutions of the 24 other Member States to protect European Union funds and to bring about the necessary changes to improve financial management.”

Sir John Bourn


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