The European Court of Auditors

Presentation to ESADE

The European Court of Auditors

Presentation by Michael BAINto the ESADE Seminar

December 2014

MissionThe European Court of Auditors …

The ECA’s tasks

* The ECA’s role and tasks and are set out in articles 285 and 287 of the Treaty on the Functioning of the EU (TFEU)

The ECA’s audit work in practiceRoad to Moundou, Tchad, Central Africa

United Kingdom European Commission, Brussels, Belgium

Food manufacturer, Spain

ECA auditors assessing the road condition in an audit on the sustainability of EU financed roads

Auditors verifying the

production log of a machine

co-financed by the European

Agricultural Fund for Rural Development

ECA auditors assessing the implementation of an EU co-financed museum of a tin mine

Many audit visits take place

at the various offices of the EU institutions and bodies, most of

which are located in

Brussels

Types of audits

Statement of Assurance (DAS)

Performance audit

The Court’s work with OLAF• Since June 1996 the Court has had in place procedures to be followed when,

during an audit, a case of suspected fraud has been discovered. Following the creation of OLAF in 1999 these procedures were complemented by a set of Court decisions and guidelines covering relations with OLAF.

• The procedures adopted by the Court are designed to ensure that information is made available to OLAF as quickly as possible and that the necessary degree of confidentiality is maintained.

• In 2013 24 cases were forwarded to OLAF. This included 14 cases from the Court’s audit work and 10 cases originating from denunciation letters.

• Of the 14 cases arising from the Court’s work 4 of those related to tendering/public procurement. 2 of these cases are ongoing fraud investigations.

• The Court is also the external auditor of OLAF and has produced Special reports on the functioning of the office.

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Recent publications by the Court:

The Annual Report of the ECA 2013 (November 2014)

•The cohesion policy of the EU is implemented through the funds of ERDF, CF and ESF, chapters 5 and 6 of the AR summarise, among other things, the key risks and weaknesses of cohesion spending.

•The first risk relates to non-compliance with EU and/or national public procurement rules when awarding contracts. For cohesion policy the poor application of procurement rules and procedures may occur deliberately in order to favour some suppliers or inadvertently because these rules are not well understood.

•A key area of error relates to the extension or modification of existing contracts, where EU procurement rules require that a new tendering exercise shall be undertaken

Agriculture and cohesion: overview of EU spending 2007-13 (November 2014)

•The biggest risk in cohesion spending relates to breaches of EU and/or national public procurement rules. The next biggest risk is that expenditure (or projects) is not eligible for EU subsidy.

•For agriculture ineligible land, breaches of agri-environment requirements and procurement rules are considered as being high-risk areas.

• PUBLIC PROCUREMENT ERRORS

• Public procurement rules are a key instrument for spending public money economically and effectively and for establishing an internal market within the EU. Serious failures to comply with these rules result in quantifiable errors.

 • Such quantifiable errors make up nearly half of the estimated error rate for

cohesion for the period 2007-13, (it is also nearly 8% in Agriculture) • They include cases where contracts are attributed without tendering,

irregularities in assessment of bids, tender specification or publication and the use of inappropriate tendering procedures.

 • The Commission indicated that, over time, the simplification of rules

introduced by the new directive on public procurement ”should help reduce errors caused by the incorrect application of public procurement rules in the handling of EU funds”

Future spending: 2014-2020 and beyond

There have been improvements in reporting on risk and on error by authorities in the Member States, but the Commission continues to face significant challenges in ensuring that this information is reliable.

Changes to regulations for the new period may not have overall a significant impact on the level of risk. While there is some welcome simplification of rules, some spending schemes will continue to pose challenges for managers in all Member States.

Many errors have arisen because the overall management and control architecture is complex. The Commission and Member States should continue to seek opportunities to simplify it.

However, in the meantime, experience shows that Member States have had difficulties in managing the current system and thus implementing the policy. Efforts being made in Member States to improve the situation need to continue.

Some thoughts on the new periodGenerally speaking, more flexible procedures (extended use of negotiated procedures, self-declarations) have the potential to decrease frequency of errors identified by ECA. Clear guidance (e.g. setting maximum value of referential works) may have the same impact.

However, ensuring compliance with the basic public procurement principles may still prove to be a challenge.

There is a risk new elements may bring new errors stemming from the fact that the contracting authorities will have to learn how to use them, There may be a lack of clarity at the beginning. Although this type of error might disappear in the with time.

It is also important to note that, for instance, new provisions related to modification of contracts do not really address the underlying issue but rather make the current practice legal. Obviously, this will apparently decrease the frequency of errors but in reality the issue will persist. 

Some of the main themes emerging from our audits

1. A tendency to “spend the budget” rather than finance only those projects

that demonstrably add value and contribute to identified needs and

objectives.

2. A lack of clear link between the needs and objectives identified in the

programmes and the method used to select projects (eligibility criteria and

selection/scoring methods).

3. A lack of specific measurable objectives leads to poor evaluation data: How

can we measure the success (or otherwise) of particular spending

objectives prior to committing funding for a new programming period?

4. Risks of deadweight and displacement are not mitigated. How are

reasonableness of costs assured?

5. As a result of the above how can we be assured that the public funding

(both EU and National) achieves best value for money?

Guidance and reports related to better spending

• Commission: Guidelines to Member StatesDG REGIO Public procurement action planNew procurement directivese-procurement becoming mandatory

• OLAF: Has published guidance including fraud indicators for structural funds the “red flags”

• ECA: Special reports and annual reports, currently working on aprocurement report at the request of the European Parliament

Forthcoming reports of interest

Special reports on:

Achieving economy in rural development projects

EU funded Airports

Thank you for your attention

Michael BAIN

Head of Unit

00 352 4398 45438

michael.bain@eca.europa.eu

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Contact Details

If you want to find out more you can:

•visit the ECA on the internet (eca.europa.eu)•follow the ECA on twitter (@EUAuditorsECA) •email the ECA at ECA-info@eca.europa.eu