EU Accounts

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EU Accounts – A QUESTION OF SOVEREIGNTY

NICHOLAS NEWMAN Tuesday, August 01, 2006

For the last eleven years we have grown used to the news headlines ‘Auditors reject EU accounts again’ or ‘EU accounts fail to pass muster.’ Basically, Euro-sceptics like to blame Brussels for this problem, because the European Court of Auditors has refused to sign off the Europe’s books again. In fact much of the blame should be addressed closer to home, since over 80% of EU spending is conducted by national and regional authorities. Brussels, itself has done much to improve, within its remit, its standards of accountancy and governance, but it is national governments that have resisted the significant reforms required to resolve this issue.

Putting it bluntly, unless member states are prepared to surrender parts of their sovereignty to Brussels, on their spending of European taxpayer’s money, accountancy reforms will only have a marginal affect on improving the accountability of how the EU budget is spent in member states.

The power to resolve this issue lies with our governments, but they are the one’s resisting further major accountancy reforms of Europe’s books. These reforms, which they see such a threat include the political, cultural, legal, administrative and procedural.

In terms of ‘real politic’, many finance ministers regard major reforms of Europe’s book keeping systems as a threat to the sovereignty of their respective states. They prefer to sacrifice improvements in the transparency and accountability of how they spend European taxpayer’s money, in order to preserve the sovereignty of the nation’s public accounts. Further, the present system permits politicians the flexibility to divert funds to pet public projects which a strict interpretation of the rules would not allow.

A specific threat to their countries sovereignty is the proposal to allow EU institutions being granted full powers to investigate national and regional government’s public finances. This is seen by many ministers as a significant surrender of aspects of their nation’s sovereignty, which many at this stage in history are not prepared to give up. This is because such a development would be seen as a further dramatic step in the EU becoming a federal state. Such a prospect means ministers prefer keeping such a reform at the bottom of the political agenda. This explains the reluctance by states to tighten up standards and it is perhaps not surprising that ministers prefer not to correct the public impression that that there is widespread fraud and incompetence within the Brussels bureaucracy. In fact the ‘EU administration is now subjected to greater scrutiny than that of any government in Europe,’ states Dalia Grybauskaité, European Commissioner for Financial Programming and Budget.

There is also the question of public finance standards concerning such issues as governance, administration, law and accountancy traditions. In Britain we have grown up on ‘common law’ and in France the ‘Code Napoleon’, which means as the NAO has found that there is ‘no commonly agreed definition of what is fraud amongst member states.’ The same differences can be found in administrative traditions, as in the case of reporting to the European Anti-Fraud Office by member states on a consistent basis. The COA has singled out Spain and Greece for serious failures to monitor farm subsidies, especially in sectors such as olive production. In fact, the Court of Auditors' president, Hubert Weber, has told the European Parliament "…the vast majority of the payments budget was again materially affected by errors of legality and regularity." In fact ‘…widespread errors across the accounts of the European Union are unlikely to improve until a comprehensive reform of its accounting system is completed,’ says Sir John Bourn the head of NAO. Of specific urgency to the European Court of Auditors, is the need for new member states such as Cyprus, the Czech Republic, Hungary and Poland to strengthen or implement new legislation on financial control, including measures intended to address internal audit issues.

The ongoing expansion of the EU into the Balkans and Baltic’s has not helped both auditors and administrators, for it has added to Europe’s administrative problems. Such growth has seen increased opportunities for human error and fraud. In fact opportunities to reduce error and fraud will not be fully achieved until improvements are completed in IT systems and accruals-based accountings are bedded down, and the accounts will continue to be qualified.

The ECA has stressed that talk of errors and unverified payments was not the same thing as fraud. The Court of Auditors has said, ‘more than a third of EU farm spending did not provide the Commission with reasonable assurance of compliance with Community legislation."

Edward Leigh MP, chairman of the Commons public accounts committee said, "Any fraud in other member states is potentially fraud against the UK taxpayer, given that we are the second largest net contributor to the Community,"

It could be argued that implementation problems of policy are likely to occur in most administrative systems, and especially so for one the size of the EU. Take for instance the issues faced by Eurocrats in dealing with procedures concerned with the Common Agricultural Policy. It is a nightmare for the application form designer; the same document has to deal with widely different farming regimes from the giant agribusinesses in Norfolk to herdsmen in the Artic to Mediterranean olive growers. Add to this coping with the differing administrative cultures, legal codes and languages of member nations, can make it a nightmare for Europe’s civil servants.

Amongst the accountancy improvements the NAO, Commission and the European Parliament have three suggestions to tackle this problem:

1. The first is that the European Institutions should be given full powers to investigate and fine member governments, organisations and individuals where necessary.

2. The second that a common standard of public finance accountancy should be implemented.

3. The third Brussels should take over direct control of it’s spending from national and regional governments.

However it is generally accepted that unless the current systems for spending EU funds are simplified, it is going to be difficult to further improve levels of consistency and reporting.

Since the likelihood of such reforms being fully implemented threatens the sovereignty of many administrations throughout the European Union, it is likely we will continue to read the familiar headlines ‘Auditors reject EU accounts again’ or ‘EU accounts fail to pass muster’ for many years to come.

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