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Head of the National Audit Office Sir John Bourn today reported to Parliament on the financial management of European Union funds.

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Today’s report highlights the main findings of the latest Annual Report by the European Court of Auditors, which was published in November 2001 and covered the management of the General Budget of the European Union for 2000. The Commission has overall responsibility for implementing the Budget, which totalled £57.9 billion in 2000, but over 80 per cent of expenditure is managed by authorities within the 15 Member States of the European Union.

For the seventh year in succession the Court of Auditors qualified its opinion on the reliability of the Community’s accounts. The Court found that the transactions underlying revenue, commitments and administrative expenditure in the accounts were legal and regular but was unable to give such assurance in respect of other payments.

The Court noted some positive developments. For instance, improvements in the design of systems for managing and controlling expenditure on the Common Agricultural Policy had contributed to improved management of large amounts of EU funds. But the Court also found on-going weaknesses. It noted, that whilst efforts had been made to simplify regulations and harmonise systems across Member States, planning, implementation and monitoring procedures for Community programmes remained complex, preventing better management, reduction of administrative cost and the easing of the regulatory burden on final recipients of Community funds.

The Court found persistent weaknesses in checking by Member States where programme management was shared with the Commission, and noted that improving the control arrangements in Member States was central to ensuring the correct use of Community funds. Sir John urges that United Kingdom government departments should constantly seek to improve the operation of the United Kingdom’s systems.

Since March 2000, the Commission has been implementing the strategy for reform which was developed by Commission Vice-President Neil Kinnock following the resignation of the previous Commission in 1999. The Commission has made considerable progress in initiating planned organisational changes, although it still has to complete the amendment of the Financial Regulation, which governs how the Commission manages and controls funds, and the revision of the Staff Regulations. Progress has been made in 2002 in both areas and it is expected that the Financial Regulation will be amended by the end of 2002, and the Staff Regulations revised by mid 2003. Sir John noted that both the Commission and the Court considered it too early to judge whether the reform process has been a success. Nevertheless Sir John considers that it is important to identify any tangible improvements achieved.

More cases of irregularity were detected and reported by Member States to the Commission in 2000 than in the previous year. Different practices continue to exist between Member States in defining irregularity and fraud and reporting it to the Commission. The Court noted that robust working definitions, agreed and understood by all parties, needed to be established, in order to ensure a common reporting basis which would allow meaningful comparisons and trend analysis to be undertaken. Sir John urges the United Kingdom Government to play a full role in taking this forward.

Sir John also noted that the enlargement of the European Union in the next few years will have an impact on the operation of all the European Institutions and urged the United Kingdom Government to seek to ensure that financial management issues are given appropriate priority during the enlargement process.

"My report draws attention to ongoing problems in the management of European funds in 2000. The United Kingdom Government has taken a leading role in supporting the reform process which is being put into effect by the European Commission and it is vital it continues to do all it can in this respect, through the Council of Ministers and its other links in the Community. The National Audit Office will continue to give a high priority to examining the way that United Kingdom departments manage Community funds."

Sir John Bourn


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