Breaking finance and business news, tax information, jobs and more for finance directors and senior finance professionals.

The European Commission and member states have made progress in strengthening the financial management of European Union funds, according to a report from the National Audit Office (NAO).

For the thirteenth year in a row, however, the European Court of Auditors (ECA) did not provide a positive Statement of Assurance on the legality and regularity of expenditure.

Lower error rate 

The report summarises the results of the Court’s examination of the European Union’s accounts and progress on the range of initiatives being taken forward by the Commission and member states.

In the Common Agricultural Policy - which represents the largest expenditure component -, the Court noted a marked reduction in the overall error to a point where it was just above the level at which a positive opinion could be given.

Despite problems with its implementation in the UK, there are indications that the introduction of the single payments scheme and the continued application of the integrated administration and control system have helped achieve a lower error rate in those member states which have adopted the scheme.

Achieving a positive statement of assurance in funding for structural measures, which are designed to reduce disparities in the level of development between regions and member states, remains the most challenging component of the budget.

Only moderately effective supervision

Generally ineffective or moderately effective control systems within member states, and only moderately effective supervision by the Commission, led the Court to conclude that this expenditure was subject to material error.

In March, the Commission confirmed a decision to impose a financial correction of some €25 million (£17 million) on the UK for not exercising its supervisory role in an effective manner in a European Regional Development Fund programme in the North-West.

A number of member states, including the UK, have indicated their intention to improve transparency of the expenditure of European Union funds through some form of enhanced reporting to their national parliaments.

As part of this initiative the Treasury will publish, in June 2008, its first annual consolidated statement on the UK’s use of European funds.

Significant challenges 

Tim Burr, head of the National Audit Office, said that there had been some improvement in financial management of EU funds in 2006, but added that there were still significant challenges to achieving a positive statement of assurance on legality and regularity of expenditure.

He warned that the Commission needed to strengthen its supervision of structural measures expenditure to reduce the level of error.

With some three-quarters of European expenditure managed by member states, however, Burr said that they too have a major role in improving the financial management of European Union funds.

He called the UK’s forthcoming account of its own use of European Funds “a helpful development”.

Annual statement of assurance 

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.

EU expenditure in 2006 was over £72 billion (€106.6 billion), with £2.9 billion (€4.3 billion) in net UK contributions – the second highest after Germany.

The Annual Report of the Court of Auditors concerning the financial year 2006 was published in the Official Journal of the European Union in November 2007.

The Comptroller and Auditor General, Tim Burr, is the head of the National Audit Office which employs some 850 staff. He and the NAO are totally independent of the Government.

He certifies the accounts of all Government departments and a wide range of other public sector bodies and he has statutory authority to report to Parliament on the economy, efficiency and effectiveness with which departments and other bodies have used their resources.

Related articles

• European steps to tackle carousel fraud
• EU proposes measures to combat VAT fraud
• Auditors reject EU budget for 13th year
• Audit office slams public sector over wasted IT millions
• Audit office casts doubt on attempts to cut red tape

Related links 

• National Audit Office