Enhancing performance

Last Wednesday, together with the president and other members of the European Court of Auditors (ECA), I travelled to Brussels for a meeting with the President and college of the European Commission. 'College' is the official term used to denote those sessions in which José Manuel Barroso is present, in his capacity as President of the European Commission, together with his whole team of Commissioners. In this context, the term is used in a similar fashion to what would be called a meeting of the Cabinet of Ministers in any individual country.

This kind of high-level and formal meeting between the European Commission and the ECA is an annual event, but last Wednesday's meeting was all the more significant because it was the first one since enlargement.

I have already had the occasion to comment that, whereas the ECA is very conscious of the need to emphasise its independence, without which its ability to carry out its audit function would otherwise be jeopardised, it is nevertheless equally conscious of the need to undertake an ongoing dialogue with the Commission and with the other EU institutions, to facilitate those changes required to secure a more effective use of EU funds for the ultimate benefit of EU citizens.

The role of an auditor will always remain a very delicate one. This by its very nature. There is the underlying need to safeguard one's autonomy and to establish facts independently of the entities or persons involved. There is also the need to develop objective criteria for the evaluation of these facts, on the basis of which it should then be possible to draw appropriate conclusions.

However this can rarely be achieved in complete isolation, if at all, and therefore an auditor must also seek to facilitate those contacts with the auditee that are conducive to the better understanding of the subject being assessed, in an effort to find more effective and efficient ways of addressing the desired objectives. The need for such a kind of positive dialogue is even more readily evident in the case of the ECA in its relationship with the other EU institutions - a requirement of which the court is very much aware.

Last Wednesday's meeting was therefore a very cordial one, but also very business-like with the two institutions acknowledging that they share common objectives but doing so on the basis of very distinct mandates. The meeting's agenda included a presentation by Hubert Weber, president of the ECA who outlined the court's work-plan for 2004 and for 2005. The Commission's position was outlined in a short introduction by Mr Barroso and in a more lengthy presentation by Siim Kallas, vice-president of the Commission for Administrative affairs, Audit and Anti-fraud.

In his presentation, Mr Kallas sought to highlight the scope and significance of the reforms implemented in successive years under the Prodi Commission and which are now being consolidated further. Some of the salient features of this reform include:

The budget system and structure has been modernised. The financial rules have been significantly overhauled. The Staff Regulations have been brought up-to-date on matters concerning the financial responsibility of staff, at all levels. Internal Audit has been introduced systematically at central and decentralised levels in each Directorate-General and the Internal Audit service is now fully operational. Each Director-General now provides an Annual Activity Report and a declaration on whether the funds that they managed have been spent in accordance with the principles of sound financial management and if the control procedures put in place give the necessary guarantees concerning the legality and regularity of the underlying transactions.

These reforms have been explained in some detail in a number of official communications from the Commission. One very recent development has been the introduction of a new accruals based accounting system. It is relevant to note that the Commission made the shift to accrual accounting on January 10, as had been indicated in its adoption of the new Financial Regulations that entered into force a year ago.

With the implementation of this new accounting system, the Commission, in its own words, is aiming to meet the highest internationally-recognised standards for financial management by public bodies. On the practical level, the new system is expected to improve the day-to-day management of funds as well as reduce the risks of errors and of irregularities.

On the very same day that the ECA and European Commission were meeting in Brussels, the Budgetary Control Committee of the European Parliament adopted a resolution clearing the way for the European Parliament to give its go-ahead for the final discharge of the 2003 budget.

As I have already had the occasion to comment, this is not an unqualified approval. It is enough to quote again the key sentences from the very first paragraph of the press release issued by the Court of Auditors upon publication of its latest Annual Report. "The Court of Auditors is of the opinion that the 2003 consolidated accounts of the European Communities faithfully reflect the revenue and expenditure and the financial situation of the Communities at the year-end.

"As in previous years, the Court considers that the operations underlying the consolidated accounts are, as a whole, legal and regular in the case of revenue, commitments and administrative expenditure. However, in the area of shared or decentralised management, and indirect centralised management, where operations are materially subject to errors, a greater effort must be made to apply the supervisory systems and controls in an effective manner so as to improve the handling of the attendant risks."

Wednesday's meeting was also an opportunity for the Commission and the Court of Auditors to focus specifically on this area where "a greater effort must be made". Mr Kallas was very direct in reaffirming the Commission's commitment to making the necessary effort. In his words, it is first of all a question of identifying "the gap between the supervisory and control systems that are in place and those required to demonstrate a sound management of the risk of irregularity".

Otherwise put, it is first of all a question of taking the necessary measures to establish a full and effective Community Internal Control Framework that envelopes not only the Commission but also the member states, in as much as concerns their role in the implementation of the EU budget.

This perspective is not in conflict with the position adopted by the Court of Auditors which formulates its principal assessment, concerning the legality and regularity of the financial transactions underlying the EU budget, in the form of a Statement of Assurance (most commonly referred to by its French name, Declaration d'Assurance, DAS). This statement of assurance is to be based on an appraisal of the relevant supervisory systems and controls, suitably corroborated by the substantive testing of the underlying transactions and taking into consideration also the examination of the declarations made by the Directors-General and any pertinent reports by other auditors.

In his speech, the president of the ECA similarly highlighted the significance of the court's Statement of Assurance and emphasised the commitment of the court to develop further, as appropriate, the relevant methodology. In his words: "The objective is to answer more and more closely the needs of the users of the DAS, for example by continued efforts to provide information on positive and negative trends, by financial perspective area, from one year to another. "

In his concluding paragraph, Mr Weber reiterated the ECA's crucial role: "For the Court, 2005 will also be a new year of reform based on continuity. By further developing our DAS approach, our audit methodology and by improving the clarity of our communication, we are endeavouring to achieve our aim of fulfilling our Treaty obligations better and better. We consider it essential that we provide the budgetary authorities (Parliament and the Council) with relevant observations and recommendations which serve as a vital tool for them in successfully performing their task as the (budget) discharge authorities."