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European Union (Financial Management and Fraud)

Volume 453: debated on Monday 20 November 2006

A year ago, under the UK’s presidency of the EU, finance Ministers agreed important conclusions on strengthening the EU’s internal financial control framework. Progress has since been made in this area, and agreement is close on a revised EU financial regulation.

So it is highly regrettable that, once again, the European Court of Auditors, in its annual report published on 24 October, was unable to give a positive “statement of assurance” on the EU’s accounts. The Court once again qualified the reliability of the EU’s accounts—for the 12th year in succession—and found that not all EU money had been spent strictly in line with the regulations.

This comes as a considerable disappointment after the work that the EU has done to improve financial management in recent years. The Court’s standards are high, and rightly so. So it should be of real concern to all member states that the proportion of spending on which the Court had doubts is the same as in the previous year.

Improving EU financial management and achieving a positive statement of assurance on EU spending will require further action across a broad front by all the parties involved: the Commission, the Council, each member state working with its national audit institution, and the European Court of Auditors itself. Unless we all accept our responsibilities, we will not achieve the positive statement of assurance that EU taxpayers are entitled to expect.

It is particularly important that member states take action at national level to improve their management of agriculture and structural funds spending, for which they share responsibility with the Commission.

In this context, the Government warmly welcome the recent report on “Financial Management and Fraud in the European Union” by the House of Lords EU Committee (HL paper 270). The report offers a timely and balanced analysis of the problems and makes some interesting and far-reaching recommendations. It also serves to dispel some popular myths about fraud and corruption in the EU. The Government will respond to all the detailed recommendations in the report in due course and in the normal way.

However, the Government are determined that the UK should take a lead in promoting the sound management of EU funds. I have therefore written today to the Chairmen of the Public Accounts Committee, the House of Lords EU Committee and the Treasury Select Committee to inform them that the UK will now undertake further reforms to demonstrate how EU funds can be better managed at the national level, and how national parliaments can be more closely involved in scrutinising EU spending.

In particular, we now intend to pursue, in close consultation with Parliament and the National Audit Office, the proposal for a statement of assurance on the national use of EU funds. The Government intend, subject to these detailed discussions, to prepare and lay before Parliament an annual consolidated statement on the UK's use of EU funds, prepared to international accounting standards, which would be audited by the National Audit Office. The statement and audit opinion would also be made available to the European Court of Auditors and European Commission.

These arrangements would enhance audit and parliamentary scrutiny of our own use of EU funds, help detect any irregularities and thus improve financial management. The Court of Auditors and the Commission could take into account the NAO's audit opinion when performing their own audit and controls.

In time, the UK hopes to be able to welcome similar reports about the national use of EU funds in other member states. I know that the Dutch Finance Ministry and Danish national audit office are already developing similar initiatives.

I will therefore be sending copies of this statement and the House of Lords report to my counterparts in other EU countries, encouraging them to reflect fully on all its recommendations, and urging them to take similar initiatives to our own to improve national accountability for the sound management of EU funds.

It is of fundamental importance to EU taxpayers that EU money is spent correctly. That is the focus of the House of Lords report. But it is also of equal importance that EU money is spent effectively. In the view of the UK, we need to go further in equipping the EU with a performance-driven and results-oriented system of financial management and administration, which ensures EU money is spent both efficiently and effectively. That will be a focus of the review of the EU budget that will be conducted in 2008-09 and on which I will make further reports to the House in the coming months.