Highlights

International Journal of Government Auditing – Summer 2015


Uncharted territory:
Landscape reviews and new ways of adding value to good governance

Public accountability is a core value of democratic societies. In the European Union (EU), effective public accountability is essential to protect the EU citizen’s financial interests, to promote trust in the EU and its institutions, and to ensure public funds are used properly. In this article, Amita Patel presents the European Court of Auditors’ (ECA) experience in preparing its recent Landscape Review (LR),“Making the best use of EU money: risks to the financial management of the EU Budget,” and the lessons that can be drawn from it.

Preparing the Landscape Review

Inspired by the innovative work of the United States Government Accountability Office’s High Risk Series and of the United Kingdom’s National Audit Office, the European Court of Auditors’ (ECA) 2013-2017 Strategy proposed a new product— Landscape Reviews (LRs)—to raise awareness and to foster reflection on the European Union’s (EU) financial management and accountability issues. The LR publications were planned to coincide with the arrival of the new members of the European Parliament and the new Commission in 2014, as well as the start of the new Multi-Annual Financial Framework (MFF) 2014-2020 seven year spending plan.

Our intention was to give our main stakeholders (European Parliament, Council and the Commission) and other interested parties an up-to-date account of issues presenting risk to the EU budget, based on our accumulated experience, knowledge and research. We did not intend to offer conclusions and recommendations, but to signpost areas where action was needed.

While the EU achieves its aims through legislation, it conducts its business in diverse ways. The EU institutions are responsible for launching activities and for achieving the results, but the activities themselves are mostly managed by others, mainly in the Member States. Thus the multi-faceted and multi-speed nature of the EU can be the source of challenges, especially in regard to accountability and financial management.

The innovative structures and activities that the EU put in place to deal with the financial and sovereign debt crises had side effects: the impact of these crises and austerity measures were biting, leading to rising nationalism and anti-EU sentiment, and ultimately raising challenging questions about what EU membership entails, with a growing erosion of trust in the EU and its institutions. For example, in the negotiations of the Multi-annual Financial Framework (MFF) for 2014-2020, many Member States showed an increasing reluctance to fund the EU budget.

Figure 1: The main risks to the EU financial management

List
Source: ECA



The EU budget comes under a great deal of scrutiny. In preparing the LR we were sensitive to the needs and expectations of our target audiences (European Parliament, Commission, the Council, Member State administrations, academics and others). We wanted to provide the interested reader with a simplified overview of the EU finances, Autumn 2015 International Journal of Government Auditing 19 Feature Articles summarizing our reports and opinions, and highlighting the important risk areas (Figure 1). And we aimed to present this information in one readable and easily accessible report.

To take account of the differing levels of perceived needs and interest of potential readers, the report was prepared in layers, with an executive summary, a detailed report providing more background, and seven fact sheets (on revenue, procurement, and on each of the five MFF expenditure headings). We used plain language and graphics to convey complex information; and, in order to remain factual and balanced, we gave context to what we were writing.

After defining the high level risks that occur in the EU budget, inspired by the joint OECD-EU Support for Improvement in Governance and Management (SIGMA) framework for risk identification, we identified more than 80 types of external, financial and activity risks and occurrences that may compromise delivery of policy aims of the EU budget. We then analyzed all of our reports since 2009 to confirm the reported occurrence of these instances.

We also analyzed our opinions, documents and websites of the Commission, the European Parliament and Council, evaluations and think-tank papers, and carried out an extensive exercise to collate all this information. We carried out a systematic risk assessment of our audit universe, also with the aim of highlighting areas for future audits. And lastly, we examined how nine main spending Commission Departments (‘DGs’) managed risks in their areas.

For example, to give context to the budget, we pointed out that the main business of the EU is legislation, and that the budget itself is comparatively small (Figure 2). Thus, as the power of the EU lies in its ability to coordinate, influence and legislate, we sought to set out the EU’s achievements in the last 20 years—which go beyond mere funding of activities.

Figure 2: The EU budget in context

Graphic
Source: ECA and Eurostat



We illustrated the two budgets of the EU—the commitments budget, which can be likened to a credit card limit, setting limits on how much the Commission can spend; and the payments budget, which represents the cash that Member States will have to make available. This shows very clearly the shortfall that will have to be funded in the future as a result of the accumulated differences between commitments and payments budgets in previous years (Figure 3).

Figure 3: The MF budgets

Graphic
Source: ECA based on Commission information



Because our LR aimed to foster reflection, we explained that we had never given a positive Statement of Assurance on the legality and regularity of the budget expenditure because we find errors above the materiality level, and that these errors occur because beneficiaries make incorrect declarations or do not comply with the conditions for getting EU support. Moreover, checks and controls by the Commission, Member State authorities and other auditors do not prevent, detect and correct these errors. We set out what was going wrong and why inherent risk is high in the spending of the EU budget (Figure 4).

Figure 4: Spending the EU budget in an inherently risky environment

Graphic
Source: ECA based on Commission information



Rather than offering a litany of problems from the analysis of our performance audits, we illustrated the most commonly reported problems as shown in Figure 5.

Figure 5: Frequently reported problems in performance audits

Graphic
Source: ECA



And lastly, rather than concluding and giving recommendations, we gave pointers as to why these issues occurred and challenges to spending the EU budget (Figure 6).

Figure 6: Challenges to spending the EU budget

Graphic
Source: ECA



Finally, we signposted the areas for future reflection, especially in the mid-term review of the MFF (Figure 7).

Figure 7: Reflections for the future

Graphic
Source: ECA



In conclusion, did we succeed in our aims with the LR?

The LR better prepares managers and those charged with oversight of EU budget management for their mandates, by providing insights on risk areas and material for the mid-term MFF reflections.

Those who want to learn more about our work find the LR a useful springboard from which to build their understanding of EU finances. Internally, we have created useful repositories of information for our staff, and through the systematic review of our audit universe, we are better able to identify areas for future audits.

The European Parliament’s Budgetary Control Committee, which gives discharge to the Commission on its management of the budget, welcomed the LR with high interest, and invited us to distribute it to all MEPs.

In September 2015, the Commission’s conference, “EU budget focused on results,” discussed many of the issues raised in our LR. Leaders from the EU’s poltiical landscape, as well as top officials from the Commission, European Institutions, EU member states and international organizations discussed performance budgeting and public budgets’ contribution to policy results. Learn more about the conference at http://ec.europa.eu/budget/budget4results/programme/index_en.cfm

What action will the Commission and Member States take as a result? That remains to be seen. As the LRs are “slow burn” documents aimed at fostering reflection, their practical impact will be apparent only in the medium- to long-term. Awareness is the first step to taking action.

Lessons learned from this experience

Since producing the report, our reflections have resulted in a few lessons which we would recommend to auditors seeking to find new ways to improve governance:

  • Carefully select the subject and potential scope before committing to a landscape review.

  • Consider timing of LRs to coincide with important events (start of new legislature, changes in legislation, policy or budgets, planned major re-organization of government departments or manner of policy delivery, Parliamentary Committee reviews).

  • Know your audience. Does it have an appetite to listen to you, and do you have a mandate?

  • What do you aim to achieve with the LR?

  • What are your main messages?

  • How can you best get these messages across to the target audience?

  • Consider how best to present the LRs to the target audience and others to obtain maximum impact from the work done.

The Landscape Review: Making the best use of EU money: a landscape review of the risks to the financial management of the EU budget is available at www.eca.europa.eu/Lists/ECADocuments/LR14_02/QJ0614039ENN.pdf

The opinions expressed in this article are those of the author and should not be taken as representing the opinion of the Court of Auditors.