When the Santer Commission was forced to step down in 1999 the shockwaves rippled round Europe. The resignation of the 20 Commissioners came after the European Parliament's Committee on Budgetary Control had pinpointed irregularities in the awarding of contracts to outside firms and the Commission had failed to respond to these findings promptly and adequately. Four years later, when it brought the Commission to book for serious shortcomings at the statistics office Eurostat, the Budgetary Control Committee again demonstrated the importance of having an EU financial watchdog.
Each year, the European Parliament has to assess how the Commission has managed the EU's budget. Parliament votes on a resolution each April to decide whether to sign off the budget, a procedure known as "granting discharge". In this way MEPs can show their approval or disapproval of the way EU funds have been spent. The Commission must act upon any comments or recommendations in Parliament's resolution. If Parliament concludes there are serious issues to be addressed, it will postpone the granting of the discharge. The Commission then has to take swift action to remedy the problems.
Results of Parliament's recommendations
Through its recommendations in the discharge resolutions, Parliament has been able to bring about major improvements in the management of the European taxpayer's money. After the fall of the Santer Commission, the rules on outside contracting were tightened up. Earlier that year, the European Anti-Fraud Office (OLAF) was set up as an independent body at the insistence of Parliament. Although the Commission already had a unit to fight fraud involving EU funds, it had become clear in 1997 that irregularities within the European institutions themselves were such that a new body was required which could also conduct independent investigations into the institutions.
In addition, Parliament has always felt that a European public prosecutor's office was needed over and above the anti-fraud office, as OLAF only has the power to investigate; it has to leave any prosecutions to the national authorities and then wait and see what happens. The proposal for a European public prosecutor has now been taken up in the draft Constitution drawn up by the Convention.
Parliament's discharge recommendations have also led to improved monitoring of agricultural spending, including the expansion of Commission staff in this area. And the Commission is currently installing a new accounting system after Parliament pointed to weaknesses in the old system.
Only once, in 1998, did Parliament refuse to grant discharge and it was this that led to the Commission's resignation. The refusal to grant discharge has no legal effect but may be regarded as a political warning shot. In 1998, after Parliament's plenary rejected the discharge, a group of independent experts was asked to investigate and they confirmed the suspicions of fraud and mismanagement. Their conclusions were so damning that the whole Commission decided to resign.
Mr Santer's successor as President of the Commission, Romano Prodi, and his Vice-President, Neil Kinnock, promised a complete overhaul of the Commission's apparatus. Despite this, in 2003 following investigations and hearings by Parliament's Budgetary Control Committee, the Commission was forced to admit that serious irregularities had occurred at its statistics office Eurostat and to take drastic measures to set things right.
Annual reports by the Court of Auditors
An important instrument for effective financial control is the work of the European Court of Auditors. This Luxembourg-based institution conducts independent audits of the collection and spending of EU funds. It assesses the way the EU institutions and agencies carry out their tasks and examines whether financial operations have been properly recorded, legally and regularly executed and managed.
For several years now, the Court has concluded in its comprehensive annual reports that irregularities affect some 5% of expenditure. Fraud is only a minor aspect of these irregularities, which are mainly due to problems such as the incorrect filling in of application forms. Moreover, the Commission itself can only be held directly responsible to a very limited extent, since some 80-85% of EU funds are managed and monitored by national and local administrations in the Member States.
Division of labour
Because of the complexity of the EU budget, individual MEPs on the Budgetary Control Committee specialise in particular EU policies and prepare Parliament's response to special reports by the Court of Auditors in their field, often in the form of working papers for the guidance of the MEP with overall responsibility for the discharge.
Apart from scrutinising the way the Commission has dealt with the EU's general budget, the Budgetary Control Committee makes an assessment of the financial management of other EU institutions, such as the Court of Auditors, the Court of Justice, the Committee of the Regions and the Economic and Social Committee and, of course, the European Parliament itself. It also examines the budgets of EU bodies such as the Agency for Safety and Health at Work, the Environment Agency, the Translation Centre, the Monitoring Centre for Drugs and Drug Addiction, the Monitoring Centre on Racism and Xenophobia, the Reconstruction Agency for Kosovo and the European Ombudsman.