In an occasional series of blogs, EUROPP will be covering all the main EU institutions, some of which are not so well known. In the first of the series we look at the European Court of Auditors, which was set up in 1975, is head-quartered in Luxembourg, and is sometimes referred to as the EU’s ‘fifth institution’. Here Geoffrey Simpson explains what the Court does and how it operates.

In liberal democracies every government has an external auditor, a separate professional body that can provide an objective assessment of how the government’s departments and agencies undertakes their budgetary tasks and the efficiency and effectiveness with which they spend public money. Within the European Union the relevant body is an independent EU institution, the European Court of Auditors (ECA). It is called a ‘Court’ because it is based on – but does not directly follow – the continental model of external auditor arrangement, which can be traced back to the Cour des Comptes in France. The Court itself consists of 27 senior auditors or administrators, one from each of the EU’s member states, appointed for six year terms, who constitute the top-level governance committee for the ECA as a whole (employing some 800 staff).

As the EU’s ‘financial watchdog’ ECA safeguards the financial interests of citizens and taxpayers throughout the Union. Securing effective and efficient spending is of paramount importance in view of the ongoing economic crisis. The Court assesses the quality of the EU’s financial management, and makes recommendations about improvements that could be made. Its reports raise public awareness of accountability, and seek to improve the transparency of EU finances. ECA’s President Vítor Caldeira explained recently:

“The Court believes that the need to restore confidence and trust makes improving EU public accountability a priority. Public auditors such as the Court and the “supreme audit institutions” of the Member States [such as the National Audit Office in the UK, or the Cour des Comptes in France] have a major role to play in achieving that goal”.

Each year the ECA audits the EU budget independently and impartially. The Court listens carefully to and takes into account the views of stakeholders in the audit process, such as the European Commission, the European Parliament, and national authorities in member states. However, it does not seek instructions from any of these bodies, nor does it give in to pressure from any of these.

The main body being audited by ECA is, of course, the European Commission, as it has overall responsibility for the implementation of the EU budget (around € 130billion annually). However, the Court also carries out audits of other EU institutions and bodies, such as the European Court of Justice, and of all the EU agencies. Member states also play a major role in audits concerning those policy areas – representing around 80% of the total – where member states share the management of EU funds with the Commission. The ECA’s auditors are qualified accounting professionals drawn from across the EU’s countries, whose task is to check that money has been spent efficiently on the specific activities that were intended by legislators and EU decision-makers. The auditors perform extensive desk checks and examine samples of transactions and systems and make IT audits right across the budget. They also make field visits to see how money was spent on the ground – which may take them to many different sites across the EU area, and for development spending and overseas activities across the rest of the world. The results of this work are then carefully analysed by teams of auditors before being presented in timely reports and opinions, with findings and observations made solely on the basis of sound, professional evidence. The strong and authoritative messages and recommendations in these reports are an essential element of the European Union’s chain of accountability, and they contribute to improving the financial management of the EU for the benefit of all its citizens.

The Court of Auditor’s most important and comprehensive publications is its weighty annual report on the implementation of the EU budget. (A sister report covers the European Development Funds, part of the EU’s extensive overseas aid programmes). The annual reports summarise the results of the financial and compliance audits that the ECA’s auditors have carried out throughout the year, and is usually published in November. Key components include the ‘statement of assurance’ [an overall assessment of the legality and regularity of spending] and details of estimated error rates, both for the EU budget as a whole (i.e. collection and spending) and for individual policy areas (such as agriculture, energy, transport, etc.). These error rates are not an indication of fraud. Instead they reflect the ECA’s estimation of the frequency of failures to comply with financial rules, and their financial impact.

In most cases this non-compliance consists of:

• breaches of public procurement rules;
• cases where ineligible costs or incorrectly calculated costs were claimed in respect of projects co-financed by the EU; or
• over declaration of land areas attracting subsidies by farmers.

Last year, the ECA concluded that the payments underlying the accounts for the EU’s 2010 budget were affected by material error at an estimated rate of 3.7 per cent. The Commission’s policy area ‘Cohesion, energy and transport’ was the area of EU spending that was most significantly affected: the estimated error rate in this area was 7.7 per cent, which also represented an increase for the area on the previous year.

In addition to its annual reports, the ECA publishes special reports and opinions on selected topics every year. Published throughout the year, these reports cover performance and compliance issues relating to quite specific budgetary areas or management topics. Recently covered topics include the EU wine market reform, the control system for organic food production and how the EU organizes its staff development process. The Court of Auditors selects and designs its audit tasks here to be of maximum impact for EU decision-makers and citizens, making the best possible use of its resources. It also explains the annual report in an accessible form in its Information Note, published alongside the annual report.

All of these ECA publications provide an important basis for the annual ‘discharge procedure’. This is the process by which the European Parliament decides whether the Commission has fulfilled its responsibilities with regard to the implementation of the EU budget, basing its decision on recommendations from the Council. ECA reports inform the Parliament’s consideration.

The Court of Auditors is committed to being at the forefront of developments in public sector auditing both in the EU and worldwide. In this spirit, ECA has recently launched the European Court of Auditors’ Award for research into public sector auditing for 2012. This year’s award is dedicated to the memory of Juan Manuel Fabra Vallés, a former President of the ECA who contributed greatly to the development of the ECA as the external auditor of the EU’s finances during his term in office.

Please read our comments policy before commenting.

Note:  This article gives the views of the author, and not the position of EUROPP – European Politics and Policy, nor of the London School of Economics.

Shortened URL for this post: http://bit.ly/U0ulIQ

_________________________________________

About the Author

Geoffrey Simpson – European Court of Auditors
Geoffrey is British and has worked at the European Court of Auditors for 20 years. He trained as a chartered accountant in the London office of one of the (then) big-six accounting firms. After gaining further private sector audit experience in Luxembourg, Geoffrey passed a competition to become an official at the ECA. He first worked on the development and subsequent implementation of the annual statement of assurance. This was followed by working in quality control. Now Director of the Presidency, Geoffrey has responsibility for the ECA’s international relations, communication and strategic support.