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Chris Heaton-Harris MEP: A Beginner's Guide to the “Discharge of the European Budget”

Chris Heaton-Harris Chris Heaton-Harris is currently an MEP for the East Midlands, and will be standing down at June's European election to concentrate on his role as prospective parliamentary candidate for Daventry, where Tim Boswell is standing down. He is a member of the European Parliament's Budgetary Control Committee.  Last year he wrote a rough guide to the contents of the EU budget.

There is one thing that everybody seems to know about Europe. And it is quite shocking that considering everyone's knowledge of the problem, that no one seems to care about a solution; or indeed care at all.

I am talking about the perennial story of the European Commission's accounts not being signed off – this time for the 14th consecutive year.

What most people probably don't know - and what never gets reported - is that after the Court of Auditors gives it's opinion (normally there are a few headlines - see here and here for some recent examples) a long process starts, which lasts 9 months and gives MEPs the power to look into every Eurocent that the Commission has spent in the previous year.

The plain fact is this: the Court of Auditors has no power over the EU Budget. I'll say that again: the headlines you have read every year about accounts "not being signed off" refer to an institution with no real power. The European Parliament, by contrast, has genuine power here. If the Parliament refuses to grant discharge ("discharge" means a positive approval of the accounts) then whilst the Commission is not compelled to resign, a considerable amount of pressure would be imposed on it to sort out the problems within its accounts and accounting systems once and for all.…

This article's purpose is to take you through the jargon and the boredom of the “Budget Discharge” process. I want to explain which questions I ask, and why, and explain why I think this process deserves a lot more attention from the press and MEPs than it currently gets.

I am ardently hoping that one of the MEPs who will replace me at the forthcoming European elections might look at this and be better prepared than I was when started researching this subject nearly ten years ago.

So, let us start at the very beginning...

Article 274 of the Treaties essentially states that the European Commission is responsible for the money it spends on behalf of the European taxpayer - "The Commission shall implement the budget, in accordance with the provisions of the regulations made pursuant to Article 279, on its own responsibility and within the limits of the appropriations, having regard to the principles of sound financial management.".

The Commission's accounting year runs from 1st January to 31st December.

As you would expect, there is a process by which the Commission's accounts are checked, first internally by its own accounting staff and then by external and independent auditors -the European Court of Auditors - after the financial year ends to ensure that money has been spent correctly.

The European Court of Auditors thus checks random samples of transactions to ensure that the processes and accounting systems are solid and work. After the accounts close for a financial year, say 2007, the European Court of Auditors complete all their various checks and then write their report. This gets sent to the European Commission who argue over what the Court has written in what is called the "contradictory procedure". Simultaneously the heads of each Commission Department (known as Directorates-General) sign a letter where they say either that 'everything is fine' within their DG, or that they would like to express 'reservations' in certain areas. These comments are made available to the European Parliament in a report so mind-numbingly boring that very, very few MEPs actually read it.

The Court of Auditors' report on the Commission's accounting year 2007 was published in early November 2008. It is 304 pages long (it can be found here if you are feeling particularly masochistic today) and for the 14th year running it failed to give a “positive statement of assurance” (i.e. it didn't sign off) the European Commission's accounts.

Actually, even this statement is amazingly difficult to find within the report. It seems that even the European Court of Auditors is embarrassed by constantly having to not sign off the Commission’s accounts.

The European Parliament's role

As soon as the Court of Auditors publishes its report a debate is held in the plenary session of the European Parliament. After this the Budgetary Control Committee take the report, questions various European Commissioners about the accounts of their Directorates-General and then, generally in March, vote on whether the Parliament should "grant the discharge"  or not.

The Parliament has never voted to NOT grant discharge. Just to be clear: every year, for the past 14 years, the Court of Auditors have refused to sign the accounts off. And every year the elected representatives in the European Parliament say "carry on, chaps".

Last year, on 24th April 2008, Labour and Liberal Democrat MEPs voted - as usual - to let this farce carry on. Conservatives MEPs voted against, numbering over half the entire opposition in the Parliament (it was passed by 582 votes to 49). The whole of the EPP-ED, with the honourable exception of Gabriele Stauner MEP, voted to grant discharge. And for those who think UKIP are the ones who stand up to this kind of fraud and waste, at one of the most important votes of the year only 3 of UKIP's current MEPs bothered to even show up.

Concurrently there is also a debate in the European Council between the Member State Finance Ministers - Alistair Darling would have attended this year’s back in November and the results of this discussion are reported back to the Budgetary Control Committee - about whether the European Council agree that the accounts should be signed off. This debate rarely lasts longer than a few hours and very few countries seem to care. Rarely does anyone question why money cannot be accounted for correctly, let alone propose not rubber-stamping the accounts. Credit here should go to the Dutch Government, who a few years ago decided to take a stand against the waste of their citizens' hard-earned cash.

Alas, the same cannot be said of the British Government. In all the time that Gordon Brown was Chancellor of the Exchequer, neither he nor his Department ever raised any questions about the state of the Commission's accounts in these meetings. He nodded the accounts through along with everyone else. The amount of money that is estimated to go missing each year is varies between £3bn and £8bn and that roughly corresponds to the UK's net contribution to the EU every year - surely any prudent Government should be demanding better controls?

Alas, the Court of Auditors bowed to political pressure a long time back and no longer gives a percentage figure as to how much money it thinks is spent incorrectly or wastefully and so for years now, we have not had any solid figures to work with.

People who have stood up and asked questions

At this point I think we should have a short, but important, history lesson.

Back in the late 1990’s a low-ranking European Commission official called Paul Van Buitenen noticed a number of things happening in and around his office that he was uncomfortable with. His story is well documented and indeed, he wrote an excellent account of what happened to him in a book called “Blowing the Whistle” (available from Amazon) but to sum it up, instead of his superiors helping sort out the problems that he found, he was harried out of his job, he and his family were followed in the street, bullied and threatened by officials to the extent that his wife had a nervous breakdown.

Van Buitenen was a stronger man that the Commission officials who were trying to break him had bargained for and he contacted a number of MEPs, including Edward McMillan-Scott, who helped bring his case into the public domain.

This scandal broke at the same time as a number of other smaller scandals within the Commission came to light and the resulting wave of news stories encouraged the European Parliament of the time to threaten the Commission with censure.

Unable to cope with the pressure of possible censure, on March 15th, 1999, the European Commission fell. The complete European Commission resigned. And at that point absolute panic set in, for no one knew what to do!

Captains of industry were concerned as to who was regulating them; Government leaders were in a quandary, the next Commission was due to come in within a few months and whilst there were attempts to try and speed up the process of bringing in a new Commission, it was proving impossible for the institutions to move any quicker and thus the Santer Commission decided to stay on – it would not make any decisions, but would keep the machinery of European administration well oiled so any future Commission could hit the ground running.

Whilst Euro sceptics across Europe were celebrating the demise of the Commission, many of those who were keen to drive European integration forward were stunned, angry and determined to never allow this to happen again.

All of a sudden, the boring budget discharge procedure had become very political indeed. Reform of the EU Accounts was demanded from all sides – although not for the same reasons. Some were calling for this to protect European taxpayers' money; most, however, because they realised that the fraud and waste was becoming a barrier (both in political and PR terms) to closer European integration.

So, in the European Elections of June 1999 most of the major political parties across Europe and all of the main political parties in the UK had similar passages in their European election manifestos, promising to clear up the mess in the European accounts and when the long awaited new Commission came into power, under the leadership of Romano Prodi, it promised the same - even laying out a five point plan for greater accountability of the Commission.

Despite the Santer Commission resigning in disgrace, four of it's Commissioners - 20% - were immediately re-appointed. One of these, a certain Neil Kinnock, was installed as Vice President of the Commission in charge of “Administrative Reform”. Alongside Michaela Schreyer, the new Budget Commissioner from Germany, he was charged with sorting out the Commission's accounts.

These appointments were regarded as recognition that restoring the public's trust in the Commission and its accounts was top priority.

Commissioner Kinnock started with gusto and as you would have expected, made lots of long speeches preparing the ground for the tough work ahead:

"With reform, we will help to build from good performance to the excellence that the European public deserves and Commission people want to provide"

"Reform and renewal are essential ... for the purpose of enlargement… The really hard work starts now"

And so on.

Commissioner Schreyer started more quietly, but seemed resolute in trying to come to terms with her Department.

There were some problems for her there – the Head of her DG, Mr JP Mingasson, was the ultimate encapsulation of a brilliant but arrogant male French civil servant – called the Budget Discharge process “an inter-institutional game” which was an inconvenience and distraction for all in his department. The emphasis was to spend money (huge surpluses had been building), not to be held to account for it!

Meanwhile, the majority of MEPs decided that the new Commission should not be held accountable for the mistakes of the past and, probably fairly, they gave the Commission some time to get on with the job of reform. However, they also were busy changing the rules to ensure that no Commission should ever fall again in such circumstances.

One such change removed the ability of the Parliament to censure individual European Commissioners. Instead, should the Parliament wish to censure anyone in the future, it would actually have to censure the whole Commission. This might sound like a minor change; however it basically removed this weapon (which previously had been used to scrutinise individual appointments and keep Commissioner in check) from Parliament's armoury altogether.

Previously it had been difficult enough to raise the numbers of signatures needed for the censure of an individual Commissioner, as the country from where would ensure that tremendous amounts of political pressure were exerted on those mooting the idea of censure in the first place. However, now to censure the Commission, you would be attacking every Commissioner from every country. Remember for a moment that the nomination for these positions is in the gift of the Prime Minister or President in most European countries and that they tend to nominate a close friend or associate – so by attacking these appointees you are essentially taking on the Head of Government of each country in Europe, and thus their political parties and civil servants. No matter the scandal, I am certain that huge political vested interest will ensure that no Commission could possibly fall in the future.

Not content with this massive safeguard, the Parliament's own lawyers - its Legal Services - then "clarified" the situation, saying that a negative discharge shouldn't necessarily lead to the fall of the Commission. Suddenly, MEPs' power was massively reduced; yes, not signing off the accounts would be very embarrassing for the Commission, but it would no longer be a resigning or firing matter.

Having established that the Parliament could say what it liked about the Commission's accounts without the fear of disrupting ongoing European integration, surely MEPs would now have demanded a stronger line on reform? Alas, this ruling seemed to have the reverse effect.

Commissioners Kinnock and Schreyer, certainly between 1999 and the beginning of 2001 tried their hardest to do the jobs they had been given - indeed at the end of 2000 Commissioner Schreyer imposed her choice of candidate for the European Commission's new Chief Accountant. Against the recommendations of just about all in her Department, she decided that she wanted to pick a reformer, she wanted to pick someone from outside, but most of all, she wanted to pick a woman. Only one such candidate suggested herself – Marta Andreasen.

Marta Andreasen started work in the European Commission at the beginning of January 2001 and she was unique; she was the first fully qualified career accountant that had found themselves in that role.

As such, she will tell you, that she pretty much immediately spotted some problems: the closing balance on 31st December, 2000 did not match with the opening balance the Commission had in it accounts for 1st January, 2001. She spotted that the Commission did not use double-entry book-keeping in its budgetary accounts and had huge concerns about the accounting system on which the Commission ran its accounts. It would later transpire that in many areas the Commission did not use audit trails – so it could not exactly say that the correct amount of money was going to the correct person for work done.

I later tabled Written Question, asking when the Commission would start to use standard double-entry bookkeeping in its accounting system. The Commission’s answer basically said that they don’t use it.

“The budgetary accounts, and the execution of the budget, are based on single entry, as is the case for most public administrations, which find little value-added in recording the use of appropriations in double-entry. This is in accordance with the Financial Regulation, which does not require the use of double entry for the budgetary accounting.”

In fact Andreasen found a whole bunch of problems. Coming from outside the European Institutions she was not yet swallowed up by the cultural treacle of the reporting system, which positively discouraged reporting of problems.

Andreasen started to ask questions of her superior, Jean-Paul Mingasson. He was simply irritated by her and ignored her. Andreasen began to get seriously concerned and within a couple of months was threatening to withhold payments from the Commission as she was unsure as to where the money might end up.

It was here that the proverbial hit the fan. Andreasen was summoned by Schreyer, who had now changed from being her strongest supporter to being wary of her – warned off by her services and told that Andreasen was trouble.

At this meeting Andreasen told the Commissioner of the problems she had found and promised to draw up a report. Schreyer agreed this and off Andreasen went. However there were many now in the Commission who had had enough of her making waves, and briefings against her started to be heard by Commissioner Kinnock, the Vice President of the Commission for Administrative Reform.

What happened next was a comedy of errors and a shockingly poor cover up.

Andreasen sent her report full of reforms to her superiors. It was reviewed by a number of people including the Commission's Internal Auditor, Jules Muis, who sent some of the most infamous memos about Andreasen’s report to his bosses:

Mr Muis claimed the Commission's accounting control systems were "rudimentary", and complained there were hardly any checks made on the quality of statements made by each department head, which "repetitively opens the Commission to a high level of reputational risk." The Commission's budget department was described as "severely under-resourced" and the weakness of the budget control systems was a cause of "major concern".

In another he said that the European Commission should only start reforming its accounting practices "if it has a commissioner... who has the stamina and spine to take a lot of shit and see it through consistently".

This has to go down as one of the bluntest synopses ever given. So blunt, in fact, that the Financial Times saw fit to publish it on their front page.

Eventually, those high up in the Commission decided that Andreasen had to go. She was summoned to a show down with Commissioner Kinnock, where he was meant to remove her from her duties. He had to do this, as the Commission press service had already placed on the front page of the FT a short article stating that this had happened.

Alas, somehow, Marta Andreasen left that meeting still in post. As she departed the Commission building to head for the airport and then onto her home in Barcelona, panic was the order of the day in the building she left.

And so, to his eternal shame, an extremely embarrassed Neil Kinnock, the man who took on “Militant” in Liverpool and told a Labour Party conference of his shame he felt of the grotesque way Derek Hatton's council fired workers, by sending their redundancy notices to them by taxis – that very same Neil Kinnock allowed Marta Andreasen's suspension letter to be faxed to the Airport and be delivered to her at the gate of her departing plane by airport security guards.

I am pretty sure that was exactly the moment that Marta Andreasen chose to share what she had found with a wider public. Still trying to be professional, she contacted a number of MEPs by letter to raise her concerns. I am sure many of the others called her back, but I think it is fair to say that I was the only one who followed up what she told me at our initial meeting. Indeed seven weeks later, on August 1st, 2001, and after a huge amount of double checking facts and figures, asking many questions etc, it became obvious that the Commission was not interested in “Reform” at all, and so Marta's story splashed on the front page of the FT.

A few weeks later the European Parliament showed its true colours and whilst talking the talk on reforming the accounts, it chose not to allow Marta Andreasen to address the Budgetary Control Committee.

And even after all we all learned from the Commission's former Chief Accountant about the former year's accounts, both the Parliament and the Council chose not to raise any concerns and signed off the accounts anyway.

So, have things changed....?

How bad are the accounts, really?

There are many myths that surround the state of the European accounts. Let me state here that they are, absolutely, slowly improving. Having said that, considering that the accounts have not been signed off for the past 14 years and just about everybody in the world knows what sort of problems that exist within them, it is rather surprising that this process of improvement is taking so long.

The main myth is that the accounts were never that bad in the first place. Just about every pro-European I have ever met has told me that the state of the accounts of the European Commission is nowhere near as bad as, for example (and they now always use the same British example) as the state of the accounts in the Department of Work and Pensions here in the UK.

Well, that quite simply is not true. However, please do not feel that you have to believe me; let us look at bits of a presentation made to the Budgetary Control Committee of the EP back in December 2006 by the then President of the European Court of Auditors, Mr Huber.

He said:

"The Court have identified levels of irregular or illegal expenditure which are significantly higher [than the DWP]. These are not one-off results, but rather have been consistent over a number of years. There is significant and compelling evidence that public funds are not being spent according to the regulations."

He then re-iterated this in a letter he sent to the Chairman of the European Scrutiny Committee in the House of Lords, Lord Grenfell at the same time.

So, there you go!

It is actually worse than it seems, as we all know that the Department of Work and Pensions has to deal with millions of smallish transactions every week. The European Commission, however, deals with significantly fewer transactions and many of these transactions are either Governments at National or regional level.

The one area of expenditure that has the most transactions is also one of the worse for fraud and maladministration – that being the DG for Agriculture and this is what the Court of Auditors Report for 2007 had to say about that:

"the Court concludes that the transactions…are affected by a level of material error of legality and/or regularity. Rural Development expenditure is particularly prone to errors. Some two-thirds of errors were classified as 'serious'. There was a material incidence of error affecting eligibility, accuracy or occurrence, such that the estimated value of the overall error rate falls into the range from 2%-5%."

Another myth is when the Commission say, as they always do, that their accounts are in good order. They then point to the following phrase, which always appears in the Court of Auditors report:

“Revenue, commitments and payments for 'Administrative and other expenditure' and 'Economic and financial affairs' are free from material error." 

Whilst this statement in itself is true, what the Commission don't like recalling is the following paragraph that also always appears:

“The other areas of expenditure payments are still materially affected by errors”.

Essentially what this means is the Commission's internal spending (on salaries, other personnel costs etc) is correct. That is something you would expect and involves little work to keep under control. It also accounts for only about 5% of the budget. The remaining 95% of the budget is subject to “significant errors (or whatever the quote in the report is)”.

Obviously the 95% of the rest of the budget is harder to police, however the annual attempt to pull the wool over the eyes of the European press on this is quite breath-taking. The Commission spin doctors, with their annual budget of £180m of your money, work hard to kill the story on day one, as it then becomes “old news” and has less chance of being printed a day or two later.

This year's spin which consisted of a very simple lie: “EU Budget given clean bill of health” seemed to do the job quite nicely.

The Discharge Process in action

Throughout the current discharge process several European Commissioners have come before the Budgetary Control Committee in the Parliament and read out long statements that would make watching paint dry seem extremely interesting. They already have a good idea of what areas of concern the members of the Committee have, as a detailed questionnaire is sent by MEPs to the relevant Commissioner a month or so in advance. This is always answered in detail and the answers mean you know roughly whether you have touched a nerve or not. As a rule of thumb, the closer to the meeting you get the answers and the longer the answer that you are given is, the closer to finding a problem you are.

There is then, before the whole Committee, a twenty minute or so exchange of views between the Parliament's “Rapporteur” (the author of the report by which the Parliament grants discharge). This year a delightful Frenchman called Jean-Pierre Audy has the honour of letting the Commission off scot-free. Of course the mood music in the Committee in these hearings is very different – a charade is acted out (as in every single one of the other ten years I have seen this process through) where the Rapporteur acts as though he/she is still considering whether or not he will recommend a positive discharge. I very much doubt whether William Hill will be taking any bets on this one!

Twice I have tried to become the Rapporteur of the Discharge report myself. I thought it might spice up the life of the Parliament a bit and knew full well that my fellow MEPs would, had I been given this report, have changed absolutely everything that I wrote when it came to the final vote. However both times, my own political group - yes, the EPP-ED, who have a remarkably poor track record of action in this area, did everything they possibly could to ensure I didn't get the report.

Then, after the Rapporteur's pleasant questioning, other members of the Committee are allowed to question the Commissioners. To be fair to them, the Commissioners normally answer these questions honestly, but the word “tame” really could have been invented for this part of the exchange. Anyone who has ever seen a Minister get a grilling in the House of Commons would be extremely underwhelmed at the EU version of Parliamentary oversight.

After all this, the Rapporteur will draw up his report. It is normally critical of the Commission in the areas where concerns have been raised by the Court of Auditors, MEPs or the Commission itself; but always recommends a positive discharge There follows the normal parliamentary process for a report, with a debate in committee, amendments being tabled and a vote in committee, before the whole thing goes for a plenary debate and then a final vote of the whole House.

And usually, by the end of March, the Commission's accounts are signed off once again, and the problems mentioned by the Court of Auditors all those months ago have once more been filed away somewhere and quietly forgotten.

Just as a final thought, in case something went so seriously wrong, that all the other changes to its procedure failed to safeguard the Commission, the Parliament made one final change to its rules. This change actually meant that the Parliament, even if it wanted to not sign off the accounts, actually could not; in fact the worse thing it can do now is postpone the Discharge for six months at this stage. Thus giving the Commission and national governments plenty of breathing space to lean on any troublesome MEPs who might be asking too many questions. Plenty of people here in Brussels will tell you that the Commission can't exert political influence. Well, they need reminding that Members of the Commission are normally politicians, and all are members of partisan political parties. From 1999 to 2004, German CSU MEP Gabrielle Stauner was one of my biggest supporters in the Budgetary Control Committee. She had a track record or both talking and acting tough on fraud and maladministration and for asking tough questions. Alas, when it came to her reselection for the CSU list in 2004, she found herself too far down it to be elected. Fortunately for her she is now back in Parliament, but she keeps well away from budgetary controversy now - and who can blame her?

Then and only then, after discharge has been postponed for 6 months, can the accounts be refused by the Parliament. You can work out for yourselves what the chances of that ever happening are.

So what's the point, then?

If this all sounds a bit negative and a bit depressing, there actually is hope. This is a process where MEPs get unparalleled access to the accounts of the Commission and the Parliament. We can ask as many questions on as many subjects as we like, and this is where we can really try to deliver on our promise to root out fraud and malpractice. We can also deliver on our promise to work for better value for taxpayers - highlighting examples of wasteful spending, and opening up what is generally a closed shop.

And there are some obvious clues to look for when investigating if something is wrong. Things tend to go wrong in the areas on big contracts, even those open to open tender and especially those connected to property; procurement – one day we will all find out how many computers lie in the cellar of the European Fundamental Rights Agency in Vienna; where people from the same nationality gather in key positions in a single department or Agency and you should always ask each individual department if any people in key posts have been “sick” for prolonged periods (this tends to indicate either lax management or alas more normally, where individuals like Paul Van Buitenen are scared or bullied into going sick.)

Alas, the problem with the European Commission is that you can change as many systems as you like; if you do not change the culture of the institution, you might as well burn taxpayers’ money.

Finally, I must mention in passing the ultimate check and balance: OLAF, the anti-fraud office of the EU. They were set up back in 1999 when the Santer Commission fell and have been, well bloody useless since their inception. Whilst set up to investigate “internal” fraud matters, they prefer the more sexy role they have been given of chasing cigarette smugglers for VAT exemption. They will remain a hopeless organisation until they are made independent of the Commission – they currently are a part of the Budget Department and are very wary of upsetting their paymaster.

So that is it! There is still so much to do and realistically I have not achieved much of what I would have liked to in this area. Perhaps after the European Elections the Conservative delegation will once again make these issues a priority, and that at least a few of our new MEPs really get to grips with the Budgetary Control Committee. If we are serious about reforming Europe, we have to take the advice of the most famous whistleblower of all -and "follow the money".

And look out for the lack of headlines at the end of this month, when yet again the European Parliament signs off the Commission’s accounts in Plenary in Strasbourg – oh, and guess which way the EPP MEPs will be voting!


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