|European Parliament Fact Sheets|
1.5.3. Budgetary control
Article 274 (205) of the EC Treaty requires the Commission to implement the budget in accordance with the principles of sound financial management (*1.5.2). This is achieved in part by internal Commission financial control mechanisms and by auditing carried out by the European Court of Auditors (ECA; *1.3.10), often in collaboration with national control bodies. The final stage of control is represented by the discharge procedure: this requires Parliament, acting on a recommendation from the Council, to give a discharge once a year to the Commission for implementation of the budget. Thus, in accordance with article 89 of the Financial Regulation, the discharge for 2000 must be given before 30 April 2002. The Commission is obliged to act on the observations of Parliament relating to execution of expenditure.
Initial control of both income and expenditure is exercised partly by national authorities. These have kept their powers, particularly on own resources (*1.5.1), for they have the necessary machinery for collecting and controlling these sums. 10% of traditional own resources are retained by Member States as a collection fee. Collection of own resources is nevertheless a matter of great importance to EU institutions. It was in this connection that the EP established a Committee of Inquiry on Transit (see below). Operational expenditure under the EAGGF, the Social Fund and the Regional Fund is also controlled in the first instance by the authorities of the Member States which often have to bear part of the cost of such interventions.
At Community level, control is exercised by authorising officers and accountants and then by the internal financial controller in each institution. The role of financial control has been under review and, as part of the current reform process in the Commission, the Financial Regulation is likely in future to require a separation of internal audit functions from ex ante approval of expenditure. Externally, control is carried out by the ECA, which submits each year to the budgetary authority detailed reports in accordance with Article 248 of the EC Treaty. These are the 'declaration of assurance as to the reliability of accounts and the legality and regularity of the underlying transactions' (known as the DAS); the annual report relating to implementation of the general budget, including the budgets of all institutions and satellite bodies; and special reports on specific issues. On occasion, the ECA also reports on lending and borrowing operations and the European Development Fund.
The Office for the Fight against Fraud (known as OLAF) is now formally independent from the Secretariat General of the European Commission. It has been reinforced at the wish of the EP and plays a prominent role in protecting the Union's financial interests, with a responsibility for fighting fraud involving EU funds in all institutions and for co-ordinating the bodies responsible in the Member States. Staffing problems have however reduced its effectiveness in the first full year of operation (1999/2000). EC Treaty Article 280 (209a) concerns fraud and the EU's financial interests; it was strengthened by the Amsterdam Treaty and now requires close and regular co-operation between Member States and the Commission, as well as opening the way to specific Council measures to afford equivalent and effective protection in the Member States for the EU's financial interests.
Unfortunately, a convention of 1995, together with two protocols, signed by Member States for implementing aspects of this co-operation has still not been ratified by the requisite number of states for it to come into effect.
ROLE OF THE EUROPEAN PARLIAMENT
From 1958 to 1970 the EP was simply kept informed of decisions on discharge given by the Council to the Commission on its implementation of the budget. In 1971, it won the power to grant the discharge together with the Council. Since 1 June 1977, when the Treaty of 22 July 1975 entered into force, it alone has given the discharge on the accounts, after the Council has given its recommendation.
The EP may decide to defer discharge where it is dissatisfied with particular aspects of the Commission's management of the budget. Refusal of discharge was considered as tantamount to requiring resignation of the Commission; the threat was put into effect in December 1998. Following a vote in plenary at which the discharge motion was rejected, a group of five independent experts was established, which reported on accusations of fraud, mismanagement and nepotism against the European Commission; the latter body then resigned en bloc on 16 March 1999.
The new Commission came into office with a strong commitment to reform and proposals for a reform strategy were adopted in January 2000. These are partly based on the second report of the independent experts on reform of the Commission, which analysed current practice and made its own proposals for tackling mismanagement, irregularities and fraud. The reform is concentrating especially on reorganisation of internal audit and control arrangements, but includes establishment of codes of conduct for Commissioners and officials, creation of an ethics committee and a wide range of changes to staff policy.
Although the principal tool of control over execution of the budget remains the discharge, Parliamentary control is now also carried out during the budgetary year concerned. To this end the Commission submits monthly reports to the budgetary authority on the implementation of the budget and quarterly reports on frauds and irregularities.
Underused lines in the budget may be the object of transfers to lines in need of reinforcement. Many of these are grouped in a proposal for a 'global' transfer submitted in the autumn; an opinion on this global transfer is used as an input to the Committee on Budgets deliberations on the following year's budget. Only transfers within the scope of existing policies may be approved; resources for new policies required in the course of the year must be the object of supplementary and amending budgets.
Because of the complexity of the Community budget, individual members of the Committee on Budgetary Control specialise in particular Community policies and prepare the EP's response to ECA special reports in their field, often in the form of working papers for the guidance of the general rapporteur on the discharge.
Parliament's specialist committees are also encouraged to play a positive role in ensuring that Community funds are spent economically in the best interest of the European taxpayer. On a number of occasions, members of the Committee on Budgetary Control have also held discussions with representatives of the corresponding committees of parliaments in the Member States, with national auditing authorities and with representatives of customs departments; on-the-spot enquiries have also been carried out by individual members to ascertain the facts underlying particular problems.
In December 1995 the EP exercised for the first time its right acquired under the Treaty on European Union to establish a Committee of Inquiry. This committee reported on allegations of fraud and maladministration under the Community transit system. Its 38 recommendations received wide support and following up their implementation has been the responsibility of the Committee on Budgetary Control.