EU Trend Report 2016
Developments in the financial management of the European Union
The EU Trend Report 2016 is our 14th annual report on developments in the financial management of the European Union. It focuses on oversight and control of the use of EU funds in both the Netherlands and the EU as a whole.
Most member states do not publicly account for their use of EU funds
There is still little insight into the regularity of the use of EU funds in the member states. A lot of money is at stake: 80% of the nearly €144 billion in the annual EU budget is spent in the member states. The member states are therefore at least partially responsible for the sound management and the correct use of that money. But the governments of only three of the 28 member states (one being the Netherlands) are willing to account publicly on how EU funds are spent within their national borders. The others confine themselves to issuing compulsory annual summaries of audits they have carried out of the regularity of expenditure. These annual summaries are not signed by the government (i.e. by a minister) or made public. For many years, the European Court of Auditors has been unable to issue a positive Statement of Assurance on the regularity of expenditure from the EU budget. This underlines the urgent need to have the member states publish full and transparent accountability documents.
Still little insight into effectiveness of EU policy
Improvements can also still be made in the insight available into the effectiveness and efficiency of the use of EU funds. The accountability documents prepared by the member states provide an insight only into the outputs of EU funding. Little is known about the outcomes. In our opinion, it is essential that the achievements of EU programmes in terms of their social outcomes are transparent so that citizens of the EU know what the EU does. This information is vital to strengthen support for the EU.
Initiatives by the European Commission provide an opportunity for improvement
The new European Commission that took office in 2014 under the presidency of Jean-Claude Juncker has given high priority to the performance of the EU. It wants to do more with less money and, where possible, apply fewer but simpler rules. Concrete initiatives taken by the Commission include:
- More focus on results. The Commission wants to match the allocation of funds more closely to its policy priorities. It also wants to fund bigger and better projects that actually make a difference. This could represent a turnaround; to date, EU funds have been allocated in advance to a number of policy fields and the allocation has been fixed for the entire seven-year programming period.
- Simpler and more flexible controls. The Commission also wants to take a new approach to controlling EU funds that are managed in the member states. Administrative burdens must be reduced and controls must be simplified wherever possible. More, and more stringent, controls should be carried out only in areas where there are proven risks of management error. The cost of controls, moreover, should never exceed the benefits.
- Money from the market. The Commission wants to attract external funding to pay for EU projects. EU policy is currently implemented chiefly by awarding grants from the EU budget. In the future more funding should be attracted from banks and/or market parties in the form of loans, guarantees, equity interests and similar financial instruments.
In our opinion, these initiatives are an opportunity to make significant improvements. The Commission’s result-driven approach can be used to match project funding more closely to demand: where do EU grants have the greatest added value? Member states can no longer assume that they will automatically “get back” a pre-agreed amount of money from Brussels. We also think that the use of money from the market can lead to more (and more visible) effectiveness. For market parties, the provision of such funds will be determined largely by the results expected from a project, more so than in the case of traditional grant awards.
We recommend that the government continue to urge other EU member states to follow the example set by the Netherlands and publish accountability documents on how they spend the EU funds they receive from Brussels. In Brussels, the government should also encourage other member to states to make public at least their compulsory annual summaries of controls of expenditure. The associated management declarations that provide assurance on the regularity of expenditure that the member states declare to the Commission should also be published as from 2016.
Response of the government
The government considers our recommendation that it continue to urge EU member state governments to publish accountability documents on the use of EU funds as support for its policy. It notes that the EU’s Financial Regulation requires the authorities in the member states to prepare a number of new annual accountability documents, namely a management declaration on the accounts, a detailed annual summary and an independent opinion prepared by an independent audit institution. If the European Commission were to publish transparent annual reports on these accountability documents that also considered the reliability of the figures and the performance of the national audit institutions, the government believes this would reveal where there were persistent high error rates. In the government’s opinion, the European Commission is not averse to taking such an approach but the member states first have to agree to their documents being published. To date, most member states have been unwilling to do so.
We will follow the government’s efforts to bring about the desired situation with interest, both during and after the Netherlands’ Presidency of the EU.