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Sir John Bourn, the head of the National Audit Office, today reported to Parliament on the financial management of European funds. The European Commission has made some headway in implementing its programme of reforms, but it is too early to say how successful they will be in reducing levels of error and fraud.

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Sir John’s report highlights the main findings of the latest Annual Report by the European Court of Auditors, which was published in December 2000 and covered the management of the General Budget of the European Union for 1999. The Commission has overall responsibility for implementing the Budget, which totalled £54 billion in 1999, but over 80 per cent of expenditure is managed by authorities within the 15 Member States of the European Union.

For the sixth year in succession the Court of Auditors found significant weaknesses in the management of the Budget and an unacceptably high rate of error in payment transactions. The rate of error was similar to that found in previous years, and Sir John concludes that it remains a matter of serious concern that little progress was made in 1999 in reducing this high level of error. Sir John is supportive of the steps taken by the Commission to simplify some Community schemes and considers that further simplification would be desirable to reduce the risk of error, irregularity and fraud.

Sir John also reports that significant problems with the reliability of the Community’s accounts persisted. The Commission urgently needs to implement clear accounting policies to enable the production of reliable, accurate and complete financial statements.

Since the period covered by the Court of Auditors’ Annual Report, the Commission has begun to implement the strategy for reform which was developed by Commission Vice-President Neil Kinnock following the resignation of the previous Commission in 1999. In his report, Sir John notes that there has been progress, particularly in introducing measures designed to strengthen audit, financial management and control. However, progress in other areas has been patchy and much of the reform strategy is yet to be implemented.

Many of the reforms will require changes in culture, which will be difficult and take time to achieve.

As part of the reform process, a new European Anti-Fraud Office was set up in 1999 but is not yet fully operational. Sir John concludes that delays in staffing the Office are a matter for concern and notes the view of the Office’s Supervisory Committee that the delays risked compromising the effectiveness of anti-fraud investigations. The United Kingdom is one of six Member States that have fully ratified the convention and protocols on the protection of the European Community’s financial interests. Sir John urges the United Kingdom Government to continue to press those Member States who have not ratified the convention and protocols to do so as quickly as possible so that effective action can be taken to deal with fraud.

"My report draws attention to serious problems in the management of European funds in 1999. I hope that in future years we will see the programme of reforms drawn up by Commission Vice-President Neil Kinnock taking effect. It is vital the United Kingdom Government, through the Council of Ministers and its other links in the Community, continues to do all it can to press for improvements in the financial management and to support the Commission in implementing the reforms. 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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