Every year, the audit report on the EU accounts results in a media storm but what else does the ECA do and what does the organisation think of the annual journalistic furore? European Court of Auditors President Vitor Caldeira speaks exclusively to Policy Review editor Dean Carroll
In the latest annual report on the European Union accounts, we have again witnessed an increase in the number of errors and incidents of fraud. Is the EU budget just too much of a monolith to reverse the long-term trend of financial mismanagement?
“All in all, the quality of the EU financial management has remained relatively stable from year to year. The EU accounts were signed off as reliable, as they were signed off each year since 2007. On the other hand, the overall estimate of the error rate for the payments has increased slightly in the last three years – after having fallen in the three previous years. It is worth noting that the error rate does not measure fraud or waste, it estimates how much money should not have been paid out because it was not used in accordance with the legislation concerned.
“Errors persist because the current legal framework for union spending does not do enough to encourage better spending. For example, if the European Commission finds errors in projects in cohesion submitted for EU funding by national authorities, those projects can be withdrawn and replaced by other projects without the member state in question losing any money from the EU budget.”
Member states blame EU bodies and vice versa for the budgetary mistakes. Is the truth that responsibility sits somewhere in between?
“The commission and the member states share responsibility for managing expenditure in areas such as agriculture and cohesion, which represent 80 per cent of European spending. Our audits continue to show many examples of weaknesses in management and control systems at both member state and commission level. For many of the errors detected through our audit, member state authorities were in possession of information that should have allowed them to identify and correct the problem before submitting claims for reimbursement, from the EU budget, to the commission.”
What punitive powers and incentives does the ECA hold to act as a carrot and stick when dealing with EU expenditure problems, aside from urging the commission to withhold further funds?
“According to the treaty, the European Court of Auditors does not have any judicial powers to enforce its audit findings and recommendations. In the cases of errors found by the court, the commission is responsible for taking the appropriate action to recover EU funds. But in our view, prevention is better than cure.
“Our recommendations help improve the financial management at all levels, from the final beneficiaries that we audit on the spot in the member states to the commission in Brussels. The commission takes the court’s recommendations very seriously and develops action plans to address them.
“The commission has a strong incentive to act on the findings and recommendations of the ECA. Our findings and recommendations are an important basis for the European Parliament to decide whether or not to grant the discharge to the commission on its implementation of the EU budget.”
Are there any further accountability measures you would like to see falling under the ECA’s remit? Perhaps, judicial powers?
“As regards improving accountability to EU citizens, in our view, the next financial framework from 2014 to 2020 should put more focus on results to be achieved by EU spending. That means that the focus on results should be reflected in the management roles and responsibilities, the objectives and targets to be achieved, the payment conditions for receiving funds, the requirements for recording, checking and reporting on results, external audit mandates – and in the arrangements for political oversight of the EU budget.
“The ECA does not need judicial powers. Its influence is based on its independence and professionalism. The court applies robust audit methods that enable it to provide evidence-based conclusions and recommendations that can be implemented effectively by the other EU institutions, such as the commission.”
So can you describe for us your own personal management style and how this works within your organisation?
“The court acts as a college with one member from each EU member state. Its president is primus inter pares, a ‘first among equals’. As president, I see my job as trying to facilitate a consensus among the court members about how best to fulfil our mission and our values in these challenging times. More than ever, the EU and its citizens need a strong, independent and professional court of auditors.”
Aside from budgetary monitoring and auditing, what are the main mission statements of the ECA?
“Audit is a means to an end. The court’s audit work helps ensure effective EU accountability to citizens. On the basis of its work, the ECA warns of risks to the financial interests of European citizens; provides independent assurance on EU financial management and offers guidance to policy-makers on how to improve the use of public funds.
“We do this by producing reports and opinions which contribute to public oversight of the implementation of the EU budget and to informed decision-making on governance arrangements, policy and programme design and the allocation of EU funds.”
Despite the Nobel Peace Prize, many commentators argue that we are seeing a deepening of the EU’s democratic deficit with austerity-burdened citizens feeling there is no real redress at the ballot box. Is this criticism fair, in your view? And with core Europe looking to reduce its contributions to the EU, will the union have to move towards supranational taxes – an environmental levy on flying, for example – to bridge the ever-widening void in the EU budget?
“I believe making the EU more accountable to citizens would help reinforce democratic legitimacy and foster citizens’ trust. Much of the court’s audit work is directed at helping to ensure accountability for the union’s budget. The key issue for public auditors is not so much how funds are raised as how wisely they are spent.
“I think it is important to see the EU budget in the wider context of developments in European economic and fiscal governance in response to the crisis. Those have important implications for accountability and audit at EU and national level.
“For example, new EU level mechanisms for coordinating member state fiscal policies have led to calls for greater coordination between the European and national parliaments. At the same time, the member states’ supreme audit institutions and the European Court of Auditors have suggested the need to develop a coherent public sector audit framework – to address a range of audit challenges arising from measures taken in response to the crisis.
“European solutions increasingly involve EU institutions working together with member state authorities. Therefore, I believe strengthening accountability and audit arrangements for the public funds used at EU and member state level are both necessary.”
Just how is Croatia’s accession as the 28th member state likely to alter the EU budget?
“The accession of a single member state does not usually impact significantly on the EU budget. This week, the European Parliament has on voted the financial package for 2014 until 2020; it already takes into account a union with 28 member states. For the European court, it means that we have welcomed a Croatian member and recruited a number Croatian staff. In future, we will need to carry out audit work in Croatia and publish all our reports and opinions in Croatian.”
And are you in favour of a continued widening and deepening of the EU even at a time of economic crisis – if so, what are the merits of further integration?
“I firmly believe in the values of the union. European integration was always designed to be a work-in-progress, moving step by step towards closer union. The financial and economic crisis has put pressure on the EU to take a number of new steps towards economic and monetary union. At the same time, EU policy-makers are considering how best to develop the single market in order to boost employment and promote economic growth. I think it is also important to remember that enlargement, and the prospect of enlargement, has positive impact on spreading democracy, human rights and good governance.”
Looking to your own nation, are you seeing any signs of economic resurgence in Portugal?
“After several years of enormous efforts to strengthen its public finances, Portugal is now close to achieving the objective of being about to return to the financial markets. There are encouraging signs of economic recovery in Portugal, with forecasts of 0.4 per cent growth for 2014. But a successful exit from the assistance programme still depends of finding a broad political and social consensus on measures to be taken to promote further growth and to reduce unemployment.”
You are now in your second term as ECA President. What are your plans for the future?
“I intend to carry out the work as planned until the end of my presidency, which will keep me very busy. Any personal plans can wait.”
Moving on then, could you outline the success of the ECA under your leadership and highlight the areas where improvements still need to be made?
“In recent years, the court has managed to improve its efficiency and effectiveness. We produce more reports than we used to and we have issued important opinions that have helped to shape the EU financial management arrangements that will apply from 2014 to 2020. We have successfully moved staff out of administration into audit and we have streamlined our decision-making processes.
“In 2008, for the first time, we invited a team of peers from other supreme audit institutions to assess our organisation and we have implemented their recommendations. We are now undergoing a second peer review. It will follow up the recommendations from 2008 and review the court’s performance audit practice.
“The Court of Auditors is currently implementing its strategy for 2013 to 2017. Our objective is to maximise our contribution to improving EU accountability. A key priority is to focus more in future on the audit of performance. That will require us to further develop our knowledge of EU policies and our methods for auditing the results achieved.”
Well, given the worsening EU budget implementation debacle, might we soon see a return to the dark days of the Santer Commission of 1999 when all were forced to step down?
“If you look at how EU financial management has evolved over the last 12 years, it is clear that there have been significant improvements. The court’s audit work clearly demonstrates that fact. Nevertheless, the ECA’s work also shows that there is further scope for improvement.
“In addition, there are new challenges ahead during the new financial framework for 2014 to 2020. The EU will be trying to do more with less. This means it must improve its performance. The court has called for a new performance culture for EU spending to be created over that period. There is an important opportunity to improve spending rules and management systems. The court is looking forward to helping the new European Parliament, to be elected in May, and the new European Commission – to be appointed in the autumn – to do that.”
We know that you are there to ensure that EU taxpayers’ money is being wisely spent. Can you honestly say that is happening at the moment?
“We know what EU money is spent on. The 2012 EU accounts prepared by the commission are reliable, as they have been since 2007. We also know that not all funds are used properly – the ECA concludes that payments from the EU budget are materially affected by error; it estimated the most likely error rate to be 4.8 per cent in 2012.
“In other words, the EU accounts have been signed off and the vast majority of the EU budget is being used in accordance with the relevant legislation and for the purposes intended. That said, not enough is known about the overall value the EU budget delivers to citizens. A key challenge over the next financial framework will be to improve performance management and reporting systems.”
What is the ECA’s own budget and how is this broken down into expenditure areas?
“We had €142m available for 2013. For 2014, the available budget will be a bit lower at €133m. During the last few years, the court financed the construction of the extension to its headquarters, which is now mostly paid out and explains partially this drop. The major part of the court’s budget is related to personnel costs including the cost of travelling in order to be able to audit beneficiaries wherever EU money is being spent.”
Some say the ECA’s auditing bar is set too high resulting in the annual media scare stories over EU budget fraud. How do you counter such claims?
“As public auditors, we report objectively on what we find in line with our mandate and professional standards. The treaty obliges the court to provide an overall opinion on the regularity of the EU revenue and spending for each financial year as a whole. Following international auditing standards, the court’s opinion is based on testing samples of transactions and assessing systems covering all policy areas. The supreme audit institutions of the member states apply the same standards as the European Court of Auditors but have different mandates.”
How does implementation of the EU budget compare with the implementation of national budgets – is the union better or worse than national governments when it comes to administering spending programmes?
“There is no basis for comparison. The EU budget represents only 1 per cent of the gross national product of the 28 member states. The EU budget is subject to a different level and type of scrutiny from most national budgets.”