EU: Financial Management

– in the House of Lords at 11:16 am on 30th June 2005.

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Photo of Lord Hylton Lord Hylton Crossbench 11:16 am, 30th June 2005

asked Her Majesty's Government:

What steps they have taken, and will take during the United Kingdom presidency of the European Union, to ensure that the European Commission produces accounts which fully satisfy the Court of Auditors and the European Parliament.

Photo of Lord McKenzie of Luton Lord McKenzie of Luton Government Whip, Government Whip

My Lords, Her Majesty's Government have taken a leading role in efforts to improve the financial management of the Community budget in recent years. Commission Vice-President Kallas announced on 15 June proposals for achieving an "integrated internal control framework". That should improve the depth and quality of financial management information on the Community budget, hence informing further measures to address any shortcomings. The UK fully supports the initiative and will take forward substantive discussions during its presidency of the EU.

Photo of Lord Hylton Lord Hylton Crossbench

My Lords, I am grateful to the Minister for his reply. However, in view of serious criticisms in the report for 2003 and doubts about previous years, would it not be helpful if the EU had a single senior officer comparable to the Comptroller and Auditor General to verify the direct spending of the Commission? Furthermore, each member country might have a similar officer checking that part of the EU spending that is channelled through member countries.

Photo of Lord McKenzie of Luton Lord McKenzie of Luton Government Whip, Government Whip

My Lords, I understand the thrust of that proposal, but it does not really meet the current requirements. What is important is that proper financial controls and systems are in place throughout all countries. Part of the challenge in getting a sign-off on the budget is that much of it—something like 80 per cent—is managed at individual member state level. In recent years there have been improvements to financial controls. There are proposals for further improvements to that, as I have outlined. Indeed, a significant improvement is the somewhat belated introduction of a proper accruals accounting system.

Photo of Baroness Noakes Baroness Noakes Spokespersons In the Lords, Treasury, Spokespersons In the Lords, Work & Pensions & Welfare Reform

My Lords, why does the Council continue to recommend to the European Parliament that it should not refuse a discharge on the Commission's accounts, even though those accounts have been qualified year after year? Why do the Government not insist that the qualification of the Commission's accounts be taken seriously?

Photo of Lord McKenzie of Luton Lord McKenzie of Luton Government Whip, Government Whip

My Lords, the Government insist that the qualifications are taken seriously. When the Council makes its recommendations to Parliament, it does so with a whole string of points and recommendations attached. When Parliament responds, it similarly has a long list of recommendations that need to be addressed by the Commission. I readily accept that the situation is far from satisfactory, but processes are in train to make it better. The Government take the matter seriously; indeed, we have been at the forefront of some of the reforms in recent years to improve matters.

Photo of Lord Marsh Lord Marsh Crossbench

My Lords, surely there is a big question to be raised over a situation that has existed for something like nine to 10 years. The answer is that every year we qualify the accounts.

Photo of Lord McKenzie of Luton Lord McKenzie of Luton Government Whip, Government Whip

My Lords, I am trying to explain that it is important that we move on from that. The processes that will enable us to move on include a better accounting system, which has been in place from the beginning of this year. All will not magically happen overnight, because the change from a cash basis to an accruals basis produces some challenges. It is important that we get an integrated system of financial controls throughout all member states. If they can properly sign up to that, we will have laid the foundations to avoid these qualifications in subsequent years.

Photo of Lord Newby Lord Newby Spokesperson in the Lords, Treasury

My Lords, does the Minister agree that the UK would be in a stronger position to put pressure on the Commission if the accounts of the Department for Work and Pensions in the UK had not been qualified for no less than 15 years?

Photo of Lord McKenzie of Luton Lord McKenzie of Luton Government Whip, Government Whip

My Lords, I do not think that that situation precludes the UK from making a strong case. As I have outlined, I am sure that it will continue to do so.

Photo of Lord Williamson of Horton Lord Williamson of Horton Convenor of the Crossbench Peers

My Lords, while agreeing with the Minister, does it remain important to distinguish between the types of expenditure—some of it made directly by the European institutions and some by the member states? In the 2004 report the Court of Auditors stated that it,

"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".

Does the Minister agree—I am sure that he will—that it is necessary to concentrate on those areas such as agriculture and structural funds, where there were problems? Overall, the result was much better this year—in fact, it was relatively satisfactory.

Photo of Lord McKenzie of Luton Lord McKenzie of Luton Government Whip, Government Whip

My Lords, I agree that there have been improvements. It is important to recognise that the statement of assurance is, on the one hand, looking at whether the accounts are reliable and reflect actual income and expenditure and, secondly, whether the expenditure has been in accordance with the policies and the legal framework that has been set up to conduct those policies. Most of the criticisms have been in respect of the latter—but some of those criticisms are in respect of irregularities that might be of the nature of an incorrect classification against a budget head, while some might be more serious. It is very important that this matter is seen in context and that we are not alarmist about where we are.

Photo of The Earl of Liverpool The Earl of Liverpool Conservative

My Lords, can the Minister give the House the actual figure that the Court of Auditors estimates is lost to fraud each year?

Photo of Lord McKenzie of Luton Lord McKenzie of Luton Government Whip, Government Whip

My Lords, I do not have that figure to hand. My understanding of what happens is that the Commission produces a report each year which contains figures that identify the extent of fraud, but I stress that the reference to irregularities in a Statement of Assurance do not equate with fraud in every case. In fact, I think that it has been estimated that something like 20 per cent of identified irregularities might have an element of fraud attached to them. That remains a huge task which needs to be addressed fully and effectively.