Financial Management of the European Union

18 Apr 2007 11:22 AM

Sir John Bourn, the head of the National Audit Office, reported to Parliament today on the financial management of the European Union. His report summarises the main findings of the European Court of Auditors’ report on the implementation of the European Union budget for 2005 and focuses on recent developments in the financial management of the European Union.

The European Court of Auditors decided not to provide a positive Statement of Assurance on the legality and regularity of European Community expenditure for the twelfth year in succession. However, the Court concluded that except for, for example, the effects of some errors on balance sheet items, the accounts presented fairly in all material respects the financial position of the European Community. Taken as a whole, the underlying transactions were legal and regular with respect to revenue, administrative expenditure, and most pre-accession expenditure. But there were material errors on some elements of the operational programmes.

In 2005 the European Commission produced, for the first time, its annual accounts on an accruals basis. This important development was achieved within an ambitious timescale. The Court’s report also observed that improvements in financial management noted in recent years, such as progress on agricultural payments subject to the Integrated Administration and Control System, were consolidated in 2005.

Also in 2005, Member States notified the European Anti-Fraud Office (OLAF) of just over 12,000 cases of irregularity, including suspected fraud, with a value of some €1 billion. The value of reported irregularities represents a 5.3 per cent increase from 2004. This increase is partially due to improved reporting by some member states. Sir John noted that it was important to distinguish between irregularities and fraud, and that the lack of a positive Statement of Assurance does not indicate that European Union expenditure is subject to an excessive level of fraud.

Sir John examined the Court’s findings in relation to the United Kingdom. Some problems were noted in relation to customs checks and flock registers, and in relation to control systems governing Structural Measures expenditure. These issues are under discussion by the Commission and the United Kingdom authorities, and final conclusions on them have not yet been reached.

Sir John also examined proposals by individual Member States to improve their own control over European expenditure. This included the United Kingdom’s proposal to publish a statement of assurance on the national use of European Union funds in the UK giving Parliament a greater role in scrutinising European Union spending.


Sir John Bourn, head of the NAO, said today:

“There has been some progress in strengthening the financial management of European Union funds. Producing accrual accounts for 2005 was a considerable achievement by the Commission. But the achievement of a positive Statement of Assurance on the underlying expenditure remains a significant challenge for the future.
“I am pleased to see Member States of the European Union, such as the Netherlands, Denmark and the United Kingdom, taking forward the development of national statements of assurance which will allow national parliaments greater scrutiny of European Union expenditure in their jurisdictions.
“It is essential to maintain the momentum of these improvements in financial management and it requires the support and cooperation by all the authorities – the Commission, the Council, the Court and Member States.”

Notes for Editors:

  1. The European Court of Auditors is the external auditor of the European Community. The Court reports annually on its findings on the management of Community funds. It also provides an annual Statement of Assurance on the reliability of the Community’s accounts and the legality and regularity of the underlying transactions. The Court is made up of one member from each Member State; these members are supported by some 760 staff.
  2. The Annual Report of the Court of Auditors concerning the financial year 2005 was published in the Official Journal of the European Union on 31 October 2006.
  3. The main operational programmes are agricultural programmes funded under the Common Agricultural Policy to aid rural development and support the agricultural sector, and Structural Measures which aim to tackle economic and social problems in areas facing structural difficulties.
  4. Accruals accounting aims to show the true cost of activities and the assets and liabilities at the year-end rather than just cash spent and received.
  5. The Integrated Administration and Control System is a system for identifying parcels of agricultural land and registering and recording this information in a computerised database.
  6. To enable direct comparison with 2004 the figure for irregularities, including possible fraud, is for the 25 Member States which constituted the European Union up to 31 December 2006.