Speech Commissioner Georgieva before the European Parliament Committee on Budgetary Control

Dear Chair and Rapporteur,

President Caldeira,

Honourable Members of this Committee and of the Court of Auditors,

As President Juncker set out in his speech to the European Parliament recently, Europe has lost some of its credibility and some of the trust of its citizens. We must rebuild them, and the Commission has the responsibility to be at the forefront of the actions necessary to do so.

The discharge procedure, which allows the European Parliament to appreciate the soundness of the Commission's financial management, will be at the heart of this debate.

It is the first time that I represent the Commission as responsible Member for the discharge procedure and I am fully aware of the challenging task ahead.

The report presented by the Court today relates to the year 2013, the last year of the previous financial framework. It is particularly important, as 2013 saw a record of around €148 billion in payments made. We are grateful for the comprehensive task which the Court once again has accomplished - thank you very much Mr Caldeira - and we welcome the findings and recommendations expressed in this report, which the Commission shares, aside from a very limited number of exceptions. The constructive recommendations will, as in the past, help the Commission to further improve, in the common goal of better financial management.

Although this year's most likely error rate for payments is still above the materiality threshold of 2%, I am pleased that the Court's audit findings show that last years' trend of increasing error rates has been stopped.

This year the Court detected a most likely error of 4,7%, as compared to 4.8% in 2012. I hope that the Commission's efforts are starting to pay off.

I am pleased that the Court concludes as in the past that the accounts are free from material misstatements and that the error rate for revenues and administrative expenditure are far below the Court's materiality threshold of 2%, that commitments in all areas of expenditure receive a positive opinion.

The Court has made important observations and recommendations for internal policies and external actions

I note that the Court identified particular problems concerning the legality and regularity of transactions financed by the EU budget in the areas of shared management, namely Cohesion policy and Agriculture.

In all areas, the complexity of the rules- notably in public procurement, state aid, eligibility- present a particular risk and the first level controls need to improve. We must work more with the Member States authorities to provide training and set the right incentives for corrections being done at the moment of management verifications, as the National Authorities often had the necessary information at their disposal.

So what can and does the Commission concretely do to address the issue of the high error rates in the Member States?

The Commission has an array of instruments at its disposal, from prevention to correction. I pledge to continue working on strengthening them and on building the right incentives for better financial management.

Honourable Members of this Committee and of the Court of Auditors,

Measures have been taken to improve the management and control environment of Member States authorities, including guidelines, training and other capacity building measures. If nevertheless errors occur, the Commission has the duty to protect the EU budget by using corrective measures.

For instance:

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  The Commission applies a strict policy on interruptions and suspensions of payments. As soon as there is evidence of serious weaknesses in a management and control system, the Commission stops payments. Payments can only be resumed after sufficient evidence has been obtained that the problems identified have been fully addressed to correct past expenditure and to improve the system, often requiring a fact finding mission/audit by the Commission and/or by the responsible audit authority.
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  In agriculture, the Commission systematically claws back from the Member States the undue payments identified as a result of its audits. This reduces significantly (by around 2 % in the last five years) the risk to the EU budget and while this can only be done in the years after the initial payment, we will strive to shorten the time lag.
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  In application of its risk based audit strategy, the Commission carries out specific systems and thematic audits in order to verify management and control systems as implemented by the Member States. Thanks to this targeted audit effort, the Court's audits, and to the increasingly reliable audit results reported by audit authorities, the Commission has been able to address, together with the Member States, the main strengths and weaknesses of the national management and control systems, to identify the core roots of errors and to request the Member States to take the necessary remedial actions.

The Note 6 annexed to the annual accounts and the recently published 'Communication on the Protection of the EU Budget' provide an overview of those measures and their impact in financial terms, taking duly into account the multi-annual dimension of the spending programmes.

This Communication demonstrates that preventive and corrective measures ensure that expenditure incurred in breach of rules is excluded from EU funding.

Moreover, due to the multiannual character of most EU expenditure and the complexity of the corrective procedures, most financial corrections and recoveries are unavoidably implemented after payments were made.

Therefore, the Commission considers that the annual error rates estimated by the Court have to be seen in the context of the overall corrective capacity of the multiannual systems.

In 2013 the Commission corrected or recovered €3.4 billion, which represents 2.3% of all payments made that year, and over the last 5 years the average amount of financial corrections was €2.9 billion per year (on average, 2.2% of all payments). These figures show that a considerable part of expenditures incurred in breach of the law, is likely to be corrected and recovered in the years to come and at the latest by closure of the related measures.

For the 2014-2020 programming period, new rules allow the Commission to reinforce its supervision for better spending:

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  Simplification: simplified cost options, which reduce the administrative burden on beneficiaries and, as the Court highlights in its annual report, are less prone to error, ;
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  Harmonisation of rules between funds, such as new rules for interruption and suspension in Agriculture, which will allow to align with the best practices in Cohesion;
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  for Cohesion, interim payments are subject to a 10% retention until acceptance of accounts;
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  serious irregularities or deficiencies in the control systems detected by the Commission or the Court of Auditors that affect accounts submitted by the Member States will lead to net financial corrections for all policy areas under shared management.;
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  management declarations and, on a voluntary basis, National Declarations at political level. In the coming days, the Commission will publish the recommendations from the Interinstitutional Working group on National Declarations.

The combination of net financial correction with interruptions and suspensions is essential to effectively improve the situation in Member States' management and control systems. The Commission will use these instruments whenever necessary.

This being said, I believe that the Court's Declarations of Assurance and the error rates need more than ever to be put in perspective with other important challenges and constraints the shared management policies are faced with.

These policies, be it cohesion or agriculture, set out ambitious objectives that are not easy to meet. Despite our efforts to simplify these policies they are also costly to manage and control: our strong multiannual corrective capacity has led Member States to invest considerable resources in their management and control systems. For example, in Agriculture, the costs of controls amount to around €4 billion a year.

While I recognise that we have to strive for improving the effectiveness of these management and control systems, I also believe that it we must do this without adding more costs and bureaucracy.

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In the general discharge resolution for 2012, the European Parliament has highlighted a large number of Binding Commitments of legal, audit, institutional, accountability and financial nature.

In the letters by former President Barroso and by former Commissioner Ṧemeta, and in the Communication on the follow-up of 2012 Discharge Recommendations evidence was given of the Commission's formal commitment to implement fully a series of related actions in order to further bring down the error rate or to limit its impact on the EU budget.

I intend to regularly monitor the implementation of the actions envisaged and to provide you with the results attained.

The financial year 2013 has been marked by a very high execution rate of the budget. The value of the assets held by the European Union remained stable at €155 billion.

The Commission's accountant will be at your disposal for any further information on this issue.

Let me finally address our efforts to strengthen the performance management on which this Committee and the Court of Auditors are rightfully focussing more and more attention as a second leg of the discharge procedure.

The Commission is working to develop a new, stronger performance culture, reinforcing effectiveness and efficiency across all policy areas. It has the responsibility, together with other actors in the budget process, and particularly the Member States' authorities, to make sure every Euro is spent effectively and serves the intended purpose. The Commission wants to demonstrate the value added of the EU budget and its contribution to the Europe 2020 strategy.

How does the Commission achieve this?

First, the Multiannual Financial Framework 2014-2020 and the related financial rules provide a sound basis for delivering better spending.

Sound financial management and protecting the EU budget are priorities of this Commission as can be noted in each and every mission letter addressed by the President Juncker to the new Commissioners.

The new generation of programmes already puts more emphasis on the performance and the added-value they should deliver to EU citizens. One of the key developments in this respect is that long term performance measurement has been incorporated into the budgetary cycle (Multiannual Financial Framework and sectoral legislation).

The different acts and partnership agreements for implementing the 2014-2020 MFF are more performance oriented and include three important elements:

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  a set of main objectives to be achieved, with links to the Europe 2020 objectives; linked to this a performance reserve of 6% for the Cohesion policy can be allocated at the end of the period.
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  indicators for monitoring progress in implementation against pre-defined milestones, targets and the objectives to be achieved; and,
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  strong arrangements for monitoring and evaluation to ensure the availability of the data necessary to assess the EU added-value, efficiency, effectiveness and overall impacts on the economy and society. This will allow timely reporting on results and performance.

I want to make best use of the focus on performance and results in the new spending programmes in close coordination with my fellow Commissioners. Delivering better has to become a collective exercise, involving in particular the Commissioners in charge of shared management.

In particular, the ex-ante setting of objectives in the Commission services' Management Plans and the consistent ex-post reporting on achievements in the Annual Activity Reports have become the cornerstones of the performance framework. This must also be the case for the Evaluation Report required under Article 318 of the Treaty .

Second, I fully support the creation of the Interinstitutional Working Group on performance requested by the European Parliament. I intend to launch the necessary dialogue with stakeholders for setting up the terms of reference without further delay.

Third, some time will be needed for the Commission to ensure effective measurement systems containing the reliable and timely information to monitor the achievement of the objectives set in the various policy areas. Suggestions from the Interinstitutional Working Group would be most welcomed in this domain.

I would like to reassure this Committee of my firm intention to maintain performance as one of my priorities during my mandate as Vice President responsible for the Budget and Human Resources. The Commission is committed to continuously improving the architecture of better performance management and reporting.

We have to be mindful of the time lag needed to demonstrate the effects of the policy and spending on quality of lives and business environment. It is relatively easy to report year-on-year on actions and outputs, by both Commission and Member States. But impacts can only be evaluated years later. It is in this timeframe that I look forward to further exchanges with the Court and with this committee to reflect the multi-annual nature of our programmes.

The monitoring, evaluation and reporting framework attached to last year's Article 318 Report set out the arrangements for the current MFF. Impacts can first start to be seen from 2016/17 and only become more fully identifiable from 2020 onwards.

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Intensive work and discussions lie ahead of us. I can assure you that the Commission is at your disposal to facilitate in the best way the upcoming debate on the discharge for the financial year 2013.

Ladies and Gentlemen, thank you for your attention.

SPEECH/14/1421

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