European Court of AuditorsAnnual Reports 2013

Vítor Caldeira, President

5 November 2014

A moment of change

• New Parliament

• New Commission

• New spending programmes and financial rules

for 2014 - 2020

• Need to make best use of limited financial

resources

Lessons from 2013

• EU financial management not yet good enough overall

• Significant room for further improving how funds are spent

EU financial management challenge

• Use all available resources, and

• Ensure spending complies with EU rules, and

• Ensure it achieves valuable results for citizens

Spending

• 2013 payments almost 99% of the maximum available

• Total spending €148.5 billion - €290 for every EU citizen.

Clean opinion

• A clean audit opinion on the reliability of the EU accounts

• As since start of programming period in 2007

Managing cash-flows

• Outstanding commitments and other liabilities continued to grow

• €322 billion at year end - likely to rise

• Commission should prepare a long range cash-flow forecast.

Financial engineering instruments

• Commission plans to make even greater use of

them

• Slow to reach recipients

• Complex and difficult to account for correctly

• Commission should ensure contributions to such

instruments reflect real cash-flow needs and

are properly accounted for

Compliance with the rules

• Revenue regular

• Financial commitments regular

• Payments materially affected by error

2013 error rate

• Estimated error rate for 2013 payments =

4.7%

• Close to 4.8% for 2012

• Persistently higher than “materiality threshold”

of 2%

Error in different spending areas

• All spending areas apart from administrative expenditure affected by material error

Higher errors for shared management

• Spending shared between the MS and the Commission is 80% of EU funds

• Error rate for payments under shared management = 5.2%

• In areas mostly managed directly by the EC = 3.7%

Effective internal controls can make a significant difference

• EC and national authorities took corrective actions on errors they found

• Otherwise, overall error rate would have been

6.3 % rather than 4.7%

Internal controls could be more effective

• National authorities had sufficient information available to have detected and corrected many errors before claiming reimbursement

• In rural development, could have reduced error rate from 6.7% to 2.0%

What needs to be done

• EC and MS need to generate better information about errors in spending and the corrective action they take

• Address the source of the problem

Main sources of error

• Claims for ineligible costs, projects, activities or beneficiaries

• Serious breaches of public procurement rules

• Incorrect declarations of agricultural areas

Financial managers not focused on results

• Primarily on spending the money available

• Secondly on complying with the rules

• Only to a limited extent on achieving results

Current spending culture

• Officials under pressure to spend or lose funding - lack incentives to achieve results

• Systems set up to use resources and to ensure compliance, rather than get results

• Need for change

Towards a culture of performance

• Court welcomes Commission initiatives • Must be based on genuine commitment at EU

and national level• Essential that right incentives are in place • Need suitable targets for results up-front • Need reliable information on progress towards

achieving them

Framework for reporting performance

• Better information is a pre-requisite for more effective accountability • Annual evaluation report produced by

Commission• Framework too fragmented – needs further

improvement• Does not cover EU added-value or progress

towards Europe 2020

Recommendations to Commission

• Propose more coherent performance reporting framework at next review

• Summarise progress towards 2020 targets in annual evaluation report

• Further develop responsibility for contribution of EU spending to policy achievements

Conclusions

• EU Budget management could – and should – be better

• Not a choice between spending, compliance and results - need all three at once

• More manageable budget = clearer objectives and simpler arrangements for spending

European Court of AuditorsAnnual Reports 2013

Vítor CaldeiraPresident

5 November 2014