JOINT COMMITTEE ON EUROPEAN AFFAIRS debate -
Wednesday, 19 May 2004

Implementation of EU Budget: Parliamentary Scrutiny and the Role of the European Court of Auditors.

Chairman

This item arises from a proposal from the Presidency raised by the Irish delegation during the meeting of Chairpersons in February. The Chairpersons agreed to discuss the role of the European Court of Auditors in the context of implementation of the EU budget. The Presidency has circulated its original report on the court. I have also received a letter from David Martin, MEP, dated 13 May, outlining concerns that there is inadequate co-operation between the European Parliament and national parliaments concerning scrutiny of the implemented budget. He proposes to include the following text in the final contribution of the COSAC meeting:

Calls for a closer co-ordination between the parliaments concerning scrutiny of the general budget of the European Union; wishes that the competent Committees of the National Parliaments and of the European Parliament establish a network in the area of implementation and control of the European budget and proposes to hold an annual meeting within the network in order to discuss the findings of the European Court of Auditors and exchange views on parliamentary scrutiny of the budget in general.

I thank Mr. Martin for this contribution. I have included the text in the draft final contribution circulated to members which will be discussed by Chairpersons at a meeting at 5.15 p.m. Copies of the contributions have been placed on the document table outside. I ask the chairman of the advisory group which prepared the draft report on our behalf, Professor Patricia Barker, to make a brief presentation to facilitate our debate.

Professor Patricia Barker

I hope everybody can hear me at the back. I am always slightly reluctant to ask that question because of the response I once received during a lecture on some boring accounting topic to a large group of students in a substantial theatre. A voice was heard, "Yes, but I am willing to swap with anyone who cannot."

I am grateful for the opportunity to speak this afternoon about the work carried out in response to the desire of delegates to consider the changes it might be appropriate to make to the European Court of Auditors to develop it for the future in rapidly changing times. This meeting is extraordinarily wise to consider the need to put in place structures for the future at this time.

It is particularly opportune for a number of reasons, of which I will briefly highlight five. First, the worldwide environment in financial accounting, treasury management, and control and accounting in general, including accountability, is becoming increasingly complex and sophisticated. Second, the weaknesses of individual accounting systems have been highlighted by very high profile accounting collapses in the private sector. We do not need to mention Enron and Parmalat to underline the point. In the public sector the European Commission has, once again, had a qualified audit report on its accounts. Third, accounting is moving very rapidly towards an international standard. Financial reporting in the private sector will move in this direction next year. As delegates will know, the Commission has approved international accounting standards from 2005. The public sector is also moving in the direction of international standards. Fourth, auditing is moving rapidly towards internationalisation of its standards. We are aware that in the private sector the eighth directive on company law has been published for consultation while last week a suite of 29 rigorous standards of auditing were announced for adoption. Again, the public sector is headed in exactly the same direction to introduce a rigorous body of international accounting standards. Fifth, the recent enlargement of the European Union and the potential for future enlargement in the not too distant future will mean the European Court of Auditors will be managed by an executive of at least 25 people. There will be 25 chief executives.

In the context of these five critical change models, it is important for COSAC to consider the European Court of Auditors of tomorrow. Given the increasing sophistication of financial reporting systems, financial management, auditing, accountability and the move to establish an international body of very rigorous standards, it is imperative that the European Court of Auditors is structured to allow it to respond efficiently and effectively to the highest technical standards. While the current structure has served us very well, it is imperative that we recognise the fact that the past is a different place. We are making decisions for the future. We require a different structure which is competency rather than constituency based and sufficiently lean and muscular to work in a fast changing environment which will demand very high levels of corporate governance and accountability.

Chairman

I thank Professor Barker for those excellent opening words. I now open the debate to general discussion.

Ms Diemut Theato

I am grateful for the proposal which has come from the Irish Presidency. I wish to consider budget control, or parliamentary scrutiny, and the current and future composition of the European Court of Auditors given current misgivings. I have had the privilege of chairing the committee on budgetary control of the European Parliament for some ten years and have been able to build up a body of experience in this area. We are responsible for looking at how European budgetary moneys are spent, whether policy priorities have been met and whether we have achieved acceptable value for money. The committee considers whether it is possible to change arrangements to achieve better value for money and whether it is possible to cut back, if not stamp out, irregularities and fraud. We are also responsible for granting discharge to the European Commission.

The committee on budgetary control prepares the discharge for the decision of the European Parliament. This is not simply a matter of presentation and approval of the accounts; it is a highly political process in which we examine the manner in which the draft budget is implemented. There are certain shortcomings. I remind delegates of the previous European Commission's forced resignation and the current status of the EUROSTAT case. The committee does not have an audit function as such. That task is performed by the European Court of Auditors which provides us with the basic material. On that basis, we consider whether it is appropriate to grant or withhold discharge. This is a political activity.

The committee considers that 25 members is a rather large number of executives for the European Court of Auditors. While it has the advantage of allowing each member state to have a member of the court, further enlargement will cause the number to swell, which may give rise to ineffectiveness. Hence, the current Convention proposal. While no mention has been made of reducing numbers, the court has begun to examine its internal structure to ensure it can accommodate the 25 members. Whether this will last in the longer term is something on which we will keep a very close eye in the European Parliament. The next budgetary control committee will have an opinion on the matter.

The appointment of members to the European Court of Auditors is another issue. We have been examining ten such appointments of persons whose term of office will be six years. This establishes discontinuity as there will no longer be overlapping terms of reference. Bringing in ten members for six years fails to do a service to the work of the court. Furthermore, we are considering the current draft constitution in which the court is not listed as one of the institutions of the European Union. It is appropriate to provide it with its own budget to ensure autonomy and its independence.

In the case of future appointments to the European Court of Auditors, the European Parliament will wish to be asked to give its assent rather than merely consulted. There are certain words in tomorrow's resolution I suggested that we do not produce a "network" but that we refer to persons in the national parliament who will liaise in these matters and meet once a year.

Chairman

If everybody observes his or her time limit, everybody will speak. If people at the end do not get a fair chance to speak, that will reflect on the Chairman. Therefore, I will be absolutely ruthless. Each speaker must keep to the four-minute limit.

Mr. Antonio Girfatti

At the Troika meeting in February it was appropriate that the item on the agenda which we are now discussing was reformulated in order that we could have a wide-ranging debate on the entire budgetary procedures of the European Union, not only on the role played by the European Court of Auditors. This broadened outlook enables us to make a more appropriate evaluation of the recommendations in the Barker report which the Irish Presidency made available in February when we had a preliminary debate on it. At that time we expressed appreciation for the work carried out by the group but a clear majority of delegations expressed strong criticism of the proposals, in both method and substance. There is no point in repeating those criticisms here but I would like to recall how the question of the reform of the European Court of Auditors also makes some points analogous to the Barker report which were raised by the United Kingdom at the Convention, although a consensus was not reached. If we propose this once again when the IGC is completing its work, it could be simply a theoretical exercise.

On the points of substance, we must recall that the advisory group referred to the role and powers of the national parliaments which would mark a significant change in the institutional balance of the European architecture. The main task of the European Court of Auditors is to provide the two budget authorities with assistance, that is, the European Parliament and the Council as they carry out their functions of budgetary control and implementation of the budget. This task is carried out mainly in the discharge procedure providing for the institutions a statement of proper management. In the meantime, minimal proposals intended to improve audit procedures by the European Court of Auditors could be usefully discussed.

The most radical proposal for reform put forward by the advisory group would create an imbalance compared with what we have seen provided for at the Convention. The national parliaments have focused on this. That is their new role in the European Union of 25 members. They should be more closely associated with the budgetary procedures. Budgetary policies are implemented on the basis of partnership between the European Commission and the member states and it would be appropriate for the European Parliament and the national parliaments to collaborate more closely in order to strengthen democratic scrutiny and the more transparent use of budgetary resources as well as the fight against fraud and practices harmful to the financial interests of the European Community.

If implementation of the budget becomes increasingly decentralised and closer to the citizens of Europe, an analogous process should also apply to co-operation procedures between the European Commission and the European Parliament's budget committee and the relevant committees in our national parliaments also. In this respect I support the proposals put forward by the delegation of the European Parliament and hope they will be taken into account in the contribution that we will adopt at the end of the COSAC meeting.

Mr. Antonino Strano

I support the proposed changes contained in the draft of the constitutional treaty when it refers to strengthening the decision-making powers of the European Parliament and when it comes to eliminating the distinction between compulsory and non-compulsory expenditure under European law to create a simplified co-decision procedure, among others.

I come from a region in the south of Italy and would like to take up the subject of Structural Funds about which we heard this morning. Removing certain mandates at certain levels is not the way to reform the European Court of Auditors. We are net contributor countries. I can reassure my Dutch friends that Italy is working on pension reform, as requested by the European Union, which will alleviate the public sector deficit but we must ensure proper scrutiny and controls are brought forward. There has been cause for concern about continuing up to 2006 in certain areas where the European Court of Auditors has expressed dissatisfaction and different practices have been deployed which leave room for improvement in terms of proper administrative procedures.

Checks and balances, however, are needed in respect of the Structural Funds. We want high speed in certain areas. We are anxious to build the bridge infrastructure locally. The checks and balances must be offset against one another but we must speed things up. We want to see much leaner supervisory panels and boards at all levels — regional, local, national and European. We need a better overview of the monitoring procedures because they provide the guarantees for everyone in Sicily. We were very relieved to see the European Union expanding because while it is true that one's slice of the cake is shrinking, the size of the cake is growing.

Today we hear a great deal about currency, banks, controls and the European Court of Auditors but we also need to stimulate developments in Europe, technological advances among other matters. COSAC would do well to schedule issues of culture and identity on its agenda for a future meeting. Often we overlook the cultural specificities of Europe. We should not forget that our differing cultural identities might give us the edge over the United States. We may be lagging behind the US economy but there is no cultural lag.

Ms Outi Ojala

We thank Dr. Barker for her excellent report. In Finland we were very pleased to note that the Presidency had raised this topic for discussion. The implementation of the EU budget has been of great importance to all of us and our citizens. The report of the Oireachtas advisory group is interesting.

In Finland we organised a debate between the members of our grant committee, the finance committee and the national audit office. The main issues are: the size of the European Court of Auditors, the content of its work, implementation of its annual reports and co-ordination between the court and the national audit offices. We also consider that the name should be changed to the European Audit Office, as the advisory group suggests. Enlargement brought up the important issue of whether there was enough meaningful work for 25 highly qualified members, plus staff. The recommendations of the advisory group suggest a number of just five auditor generals. This is interesting but it would require a treaty change. It is a little late, however, to bring the matter up at the IGC.

The work of the European Court of Auditors would be made more efficient by establishing the internal channels made possible by the Treaty of Nice. When nominating members and other staff, one should pay more attention to their professional qualifications and experience. We can make a difference by ensuring the future reports and recommendations of the European Court of Auditors will be implemented at EU level by the European Commission but also by governments at national level. We cannot afford to continue with unreliable accounting systems which would damage the EU budget. We must work together to achieve more transparency and more effective expenditure of the EU budget, with the co-operation of the national audit authorities and the European Court of Auditors. Each member state must take responsibility to ensure the quality of auditing at national level. The quality of ECA auditing must be more than the sum of its national partners. The European Court of Auditors should concentrate in the future on value for money auditing which should not be transferred to an internal audit service.

Mr. Agis Agapiou

I, too, thank the Chairman for his hospitality and extend my best wishes for the work of COSAC which I hope will be successful. COSAC should consolidate its role in this new unified Europe with the inclusion of ten new member states. I hope we will be able to contribute to the work which will be done leading up to a European constitution.

When talking about budgetary control and the competent authorities, I wish to make a very important point. It is an expression of the will of our peoples. I, therefore, believe the European Parliament should increase its weight in the budgetary control process, including in the drawing up of the budget. Its role should be consolidated at all stages of the procedure. Members of the Parliament are elected directly by the voters of Europe. It appears they are very competent and will be able to follow closely the way in which EU money is spent.

A very big part of the European budget is currently earmarked for the Common Agricultural Policy and the Structural Funds. In the light of this, there is a need for genuine budgetary control at domestic level. In other words, national parliaments must play their role in the budgetary control process. They should do so in a way that complements the work of the European Parliament. This would strengthen democratic legitimacy in a unified Europe. There is co-operation between the European Parliament and national parliaments but this co-operation should be stepped up. More specifically, we argue that co-operation between the budgetary control committee, on the one hand, and the competent committees of our national parliaments, on the other, must be stepped up. We should have a better exchange of information between the two sides. This should happen throughout the budgetary process. This would mean better budgetary control in the implementation or execution of the European budget.

The role of the European Court of Auditors should also be strengthened. Its role is already of paramount importance. We spoke about the budgetary conscience of Europe when we spoke about the court. It should be known that 80% of the European Union's budget has gone through these checks and balances. The Treaty of Nice emphasised the importance of this body and pointed out that there was a need to improve co-operation between the European and national levels when we talk about auditing or budgetary control. If there could be co-operation between the different tiers, the court could be more relevant and perhaps would be taken more seriously by the relevant bodies, competent authorities and national parliaments. Perhaps there should be a more significant exchange of views between the different sides.

The role of national parliaments is emphasised in the draft constitution. We should add to this the importance of greater co-operation with the European Parliament. This co-operation should be mentioned more specifically, as should co-operation between the European Court of Auditors and the relevant national bodies.

Mrs. Sharon Dijksma

I would like to discuss three matters, first, the suggestion by our colleague, David Martin, who spoke about a new network on the EU budget and the role of parliamentarians in this matter. I agree it is a good idea to have more substantial discussions and parliamentary scrutiny of the use of taxpayer's money, not just because we want to ensure the funds are spent in an efficient manner and in accordance with the priorities set by democratic and legitimate bodies but also because this is an important instrument in gaining the confidence of European citizens. However, what we do not want is a new bureaucratic travel agency. What will be the status of this network?

In future we would like to see COSAC discuss political matters, not itself. Therefore, it would be a pity if the new network did not directly report to the COSAC plenary session. If a network is set up, it should be informal and report once a year to the COSAC plenary session. It should also be possible to invite the President of the European Court of Auditors to tell us what is the current situation. We do not want a new network with new people who do not work with COSAC. That would be a bad idea.

I have two more recommendations. In future it would be wise to have more co-operation between the existing courts of auditors in several national member states. We in COSAC should encourage this co-operation and search for specific instruments to strengthen their role and our own parliamentary scrutiny. I agree fully with Professor Barker that to have 25 chief executives of the European Court of Auditors would not be wise. We should search for a structure which could help in the future, not a structure for the past. We cannot win the next war with the old generals.

We seek attention for our role as national parliamentarians to control the EU budget that is spent by our own national governments. Perhaps this could also be a subject for the informal network to discuss at COSAC.

Mr. Vytenis Povilas Andriukaitis

The report of the European affairs committee of the Irish Parliament is very good and useful. The presentation by Professor Barker was also good and important. It told us why the issue of budgetary supervision should be discussed and that enlargement was another factor that emphasised the need to duly administer and control EU budgetary funds. Most of the recommendations presented in the report should be smatter for further discussion and consideration because some are politically sensitive. We cannot expect, therefore, that they will be implemented shortly.

We have familiarised ourselves with the report of the Joint Committee on European Affairs of the Irish Parliament and could support the proposal to introduce a system in the future whereby we would have a professional group of five auditors general, which would be aided by 25 people who would act as supervisors. We should try to support this idea in the future.

We also support the proposal to change the name of the European Court of Auditors to the European Audit Office. Co-operation between national audit offices is very important and those proposals are acceptable.

I refer to the next issue. As a co-operation network will be created among national parliaments, I do not think we should create other new networks. This network should be sufficient.

The constitutional treaty has good provisions about the reinforcement of supervisory functions of national parliaments. We have to be very clear about this and support this position once again.

Lord Grenfell

I congratulate Professor Barker on her report and presentation. The European Committee of the House of Lords conducted an inquiry into the functioning of the European Court of Auditors just three years ago. Many of the recommendations in Professor Barker's report are quite similar but I do not have time to go into them.

I would like to take up three points, the first of which concerns the structure. We came to the conclusion, as many have done, that a court of more than 20 full-time executive members would be unwieldy, sluggish and ineffective. However, the chamber system incorporated in the Nice treaty appears to be merely a mechanism to absorb members without improving efficiency and is not radical enough to solve the problem. We accept the need for national representation to ensure the confidence of member states in the court. However, this would be better served by the impartial appointment of a highly qualified chief executive supported by a large team of audit staff reporting to a part-time non-executive board of representatives from each member state. This would maintain the representation of member states and considerably increase confidence in the court.

Second, the length of the discharge procedure is excessive. It deals with a report which is so far away from real time and so often leaked to the press in advance that it is like trying to digest a very old meal. However, a dialogue between the auditor and the body responsible is important and an element of negotiation is essential but too protracted a process alienates the Parliament and risks inviting a public perception, exaggerated though it may be, of inter-institutional conflict resolved by fudging the audit. Neither sheds credit on the institutions involved.

Third, the fact that 80% of the budget is administered by member states in no way absolves the European Commission from its responsibility for implementation of the budget. We remain deeply unhappy with the seeming indifference displayed by the Council's highest level to the auditing functions and findings of the court. Given the poor public perception of the management of the European Union's funds, the Council should be more concerned with the criticisms made by the court. While the internal audit reforms in the Commission are bringing about substantial improvements, a more rigorous follow-up to the court's observations, both in regard to the other institutions and member states, remains a pressing priority. We urge the Council at ministerial level to focus on the court's annual report — maybe some of them could even read it — as part of the process leading to their recommendation in the discharge procedure.

Mr. Jacek Protasiewicz

I thank the Chairman for his heroic attempt to pronounce my name in a language that is so new to the European Union. He did rather well considering.

I will make a few comments, which are the result of a debate we have had at our parliamentary committee on these affairs on the basis of the excellent report we received from the Irish Presidency for which I thank it very much.

We came to the conclusion that the present structure, as the professor and the Presidency found, was not efficient and effective and that would be even more so the case in future. Changes are needed, therefore, but there were some voices heard to the effect that drastic changes that would limit the possibility for all member states to have some representation on the European Court of Auditors would be difficult to accept for political reasons and that of the six models analysed in the report, the sixth model — this is true of the report's authors also — would be the most appropriate.

We believe it would be appropriate to select through a competition five professional European auditors but the 25 members of the supervisory board should be recommended by national parliaments and could perhaps be the presidents of the national courts of auditors. We have a national court of auditors presided over by an individual selected by our Parliament. Perhaps that is the case in other countries also.

If presidents of national courts of auditors were members of this board at the European Court of Auditors, that could achieve two objectives, the first of which is to improve co-operation between the European and national courts of auditors. A number of speakers have called for this. We believed it would be necessary if only with a view to avoiding duplication of audits carried out by the European and national courts of auditors.

The role of the European Parliament is extremely important in this regard. It was suggested by the chairperson of the audit committee that the Parliament should have a say in the selection of members of the board and other professional auditors, and that it should be a decisive voice. The change in name would be appropriate. Why should it be called a court? The word "office" would be a more appropriate appellation considering the work it does.

The members of our parliamentary committee drew attention to a number of other points. It seems to us that the status of the European Court of Auditors as set out in the draft constitutional treaty is somewhat dubious. We are concerned by its exclusion from the group of European institutions in the strictest sense. It is not included in Article 18 but set out in some subsidiary organ. We are also worried by what is set out in Articles 2.19 and 3.10.

Mr. Börje Westlund

Sweden has just gone through its own process to review the way in which the Court of Auditors works in our country. This has been advantageous for us. When we talk about the European Court of Auditors, we must look at it not simply from a domestic point of view but from an EU point of view. It is important that we discuss national, domestic and European audits. The latter must not be seen as completely separate. We must remember that many of the appropriations are managed by the member states but at the same time the money is coming from the European Union. That is why we support the conclusions tabled by the EU Presidency on these points.

If we are to have good control and auditing, we need good legislation in each member state. According to that legislation, one should be prohibited from abusing or misusing EU funds. That is very important. One should simply not have an EU system entirely separate, with national domestic issues in a different basket, so to speak. On the contrary, we should co-operate and find a system which will allow us to weave the two areas together, or allow exchanges between the two. We do not want to have one parliament responsible for one aspect and the other responsible for a completely different one. That is another reason we support the EU Presidency's conclusions.

Mr. Carlos Rodrigues

I congratulate the working group on the report it has presented. It is all the more praiseworthy because the work was done with very limited resources.

We are discussing structural changes in the European Court of Auditors but should first consider investment in streamlining and improving the effectiveness and efficiency of the institutions of the European Union. When we come to a conclusion, it is frustrating that we could go further but do not have the resources to do so.

Regarding the report, the arguments against maintaining the current system prevail over the opposing ones. The European Court of Auditors is a more technical and less poetic institution, as it should be. Its independence must be guaranteed with its expertise and operations. Of the various models proposed, we favour models four and six. The operational part could be left to the technical people and we could have supervision guaranteed by the member states. The best solution would be to transform this body into an independent one free of national pressure. We should, therefore, carry out further work to harmonise national systems in terms of structure and accounting standards. Special concentration should be made on ethics, transparency and good governance.

The evolution of this body needs to be more efficient and effective, and it must obtain more conclusive results. Reaching all of these objectives will help the European Union to evolve positively. I emphasise the need for prudence and a well-structured approach. It is necessary to increase specialisation, benefit from experiences around the world, and make the necessary legislative changes. If we simply stick to the status quo and add more staff without changing anything else, that is not a real solution and there will be serious consequences for an institution which requires greater flexibility and a greater capacity to intervene.

Chairman

Thank you all. This item concludes the business of the first day of the plenary session. Chairpersons should remain to consider the draft constitution contributions.