Questions and Answers: Commission investigation into statistical reporting

European Commission

MEMO

Brussels, 11 July 2014

Questions and Answers: Commission investigation into statistical reporting

See IP/14/822

What powers does the Commission have to investigate irregularities in Member States' statistics?

Since 2011, the Commission (Eurostat i) has new powers to look deeper into the quality of Member States' statistics for EDP purposes. It can carry out on-the-spot visits and check government accounts at central, state, regional and local levels, including the underlying accounting information and other relevant sources. It does this through "dialogue visits”, which aim to verify the quality of the data flow from various sources to the national statistical offices, in cooperation with the national Courts of Auditors. If there is suspicion that a Member State has misrepresented its deficit and debt data, either intentionally or through serious negligence, the Commission can open a formal investigation. If this shows that there was manipulation of data, the Commission can impose a fine on a Eurozone Member State. This was set down in Regulation 1173/2011 (Article 8) of the "Six Pack".

On what basis does the Commission decide to open an investigation?

It should be underlined that normal revisions of past data or an unintentional misinterpretation of EU rules (ESA 95) do not constitute statistical misrepresentation. Revisions to national debt and deficit figures are quite normal in statistics, as new data is fed into the general government at different points, from thousands of different sources around the country. Eurostat publishes two notifications - one in April and one in October - every year. The October notification of Member States' debt and deficit figures already reflects revisions that were made in order to incorporate the most up-to-date information.

It was decided to open an investigation against Spain as Eurostat judged that the 2012 revision in the AC of Valencia could not be considered as a normal revision.

Following information from the Spanish national statistical authorities in May 2012 that its deficit for 2011 would have to be revised upwards, mainly due to the discovery of unrecorded expenditures in the Autonomous Communities of Valencia and Madrid, Eurostat conducted several visits to these regions. These visits confirmed that Valencia had incorrectly reported expenditure and that the regional authorities of Valencia had sent incorrect data on government expenditure to the Spanish statistical authorities over many years. This was despite recommendations by the regional Court of Auditors that unrecorded unpaid bills should be recorded in the public accounts.

The formal investigation seeks to confirm the facts, to determine whether there has indeed been deliberate manipulation and / or serious negligence, and to decide which part of the “chain” was responsible for this. During the investigation, Eurostat can request information, interview people, carry out on-site inspections and access government accounts.

How long do investigations take, and what do they entail?

The Regulation 1173/2011 does not set deadlines for the conclusion of the investigation. In terms of how such investigations should be conducted, clear rules and procedures are set out in the Decision 2012/678 . This states that the Commission must adopt a report with its findings and observations within 10 months of the decision to initiate the investigation. The Commission notifies the Member State in question when it decides to open an investigation, and gives its justifications for doing so. During an investigation, Eurostat can request information, interview people, carry out on-site inspections and access government accounts at all levels (central, state, local). The Member State in question will have the right to comment on any findings before Eurostat publishes a final report on the investigation, which is submitted to the Council and European Parliament.

What possible sanctions can be applied to a Member State if the Commission finds that it has manipulated its debt and deficit figures?

The level of sanctions should be decided on a case-by-case basis, taking into account various considerations (e.g. seriousness of offence, duration/repetition, and degree of cooperation in the investigation). EU legislation foresees a maximum level of fine of 0.2% of GDP.

What rules apply to Member States when compiling and reporting their national statistics for EDP purposes?

Statistics are the backbone of EU economic governance, and fiscal policies under the Excessive Deficit Procedure are determined based on Member States' deficit and debt data. Therefore, it is crucial that statistics on Member States' economies are compiled in a consistent, comparable, reliable and up-to-date way. For that reason, there are clear and binding rules and procedures that Member States must follow in compiling, recording and reporting their national debt and deficit data. These are set out in the European System of Accounts (currently ESA 95) and elaborated in and the Manual on government deficit and debt.

Member States are legally obliged to ensure that the debt and deficit data which they transmit to Eurostat is compliant with EU rules and of the highest possible standard. National authorities are also responsible for ensuring that the correct rules and procedures are applied at all levels of government (national, regional, local), so that the source data used to compile the general government statistics is reliable and accurate.

How are local and regional accounts verified? Does Eurostat check that these have been properly validated by the central statistics office in each Member State?

Each Member State is responsible for certifying the local and regional accounts that feed its own general government statistics, including through internal and external audits. They are obliged (under Directive 85/2011) to have an effective system to ensure that the accounts that are used by the national statistics office are properly checked. Eurostat is then responsible for verifying that public accounts have been transmitted in line with EU rules (currently ESA 95).

Since it was given increased powers in 2010 and 2011, Eurostat has intensified its verification programme for EDP data. It has carried out special visits in Member States, to check that systems are in place to ensure that good quality data is transmitted from local, regional, and other government sources to the national statistics bodies. Recognising that federal States and States with autonomous regions often experience more difficulties in this respect, Eurostat has put particular focus on these Member States in its verification programme in recent years.

Why is the investigation being launched more than 2 years after Eurostat was informed of the problem?

Eurostat reacted as soon as it was informed by the Spanish statistical authorities that the 2011 government deficit had been underestimated, and organised a series of missions. The main aim of these missions were to ensure that all previously unreported unpaid bills were accounted for in the Spanish national accounts, to understand why these revisions had occurred and to propose steps to ensure that such late reporting would not occur again in the future. These missions specifically focused on the case of the Autonomous Community (AC) of Valencia, as it appeared that this region had systematically sent incorrect information to the national statistical authorities over many years.

During this period, Eurostat looked into the background of the correction which was made due to “previously unreported unpaid bills”. There was a need to assess whether indeed this might be considered as a case of “deliberate intent of manipulation” or “serious negligence” in the sense of Regulation (EC) no. 1173/2011. It is to be underlined that this is the first time that the Commission is using its new powers in this area.

Did Eurostat carry out any visits to Spain prior to May 2012?

Dialogue visits are conducted in all Member States with an average frequency of two years; this was also the case for Spain before June 2012. In addition, "Upstream" dialogue visits are designed to identify risks or potential problems with respect to the quality of the EDP reporting system, in particular primary public accounting ("upstream") data sources. The first upstream dialogue visit to Spain took place in June 2012.

Does the investigation launched today mean that Spanish debt and deficit figures are unreliable?

The investigation launched today relates specifically to statistics produced by the Region of Valencia.

The priority for the Commission (Eurostat) over the past two years has been to ensure that the situation with regard to the Spanish regions was rectified, and the right mechanisms were in place to ensure that future notifications were correct.

Following Eurostat's missions to Spain in May and June 2012, the Spanish EDP data were corrected, mainly to reflect these previously unreported arrears of regional and local governments. This correction was reflected in the October 2012 EDP notification, and Spanish data has been published without reservation by Eurostat since then.

All the expenditures that Eurostat was discussing with Spain have now been included into the general government data, and Spain has taken important steps to ensure that the reporting problems in the regions do not happen again. Eurostat will continue to monitor the situation, as it does for all Member States, to ensure that statistical practices and national data reported are in line with EU rules.

However, it is important to investigate fully why an incorrect recording took place over many years in the past, and to ascertain the main source of responsibility in this respect.

Are there currently other cases in the pipeline?

There are currently no investigations being prepared.