The EU is an economic and political bloc of 27 European countries (EU member states) that have transferred power in certain areas to the EU. By doing so, they conduct what is known ‘Community policy’ on agriculture and fisheries, the environment, trade, economics, monetary affairs and other areas.
By transferring powers to the EU, the member states cannot independently introduce, amend or rescind laws and rules in Community policy areas. National parliaments and SAIs are subject to EU regulatory frameworks and have less to say about the policy areas. This also has consequences for the audit of policy implementation.
In broad lines, the Treaty on the Functioning of the European Union states that implementation of Community policy is to be accounted for and audited as follows:
- The European parliament gives a discharge to the Commission in respect of the implementation of Community policy and the associated budget.
- The European Court of Auditors provides the European Parliament with a statement of assurance as to the reliability of the accounts and the legality and regularity of underlying transactions. The Court of Auditors expresses an opinion on whether all revenue has been received and all expenditure incurred in a lawful and regular manner. It also issues some 20 special reports every year on the efficiency and effectiveness of policy.
- The European Parliament discusses these reports in the Budgetary Control Committee. This committee also gives an annual discharge to the Commission in respect of the implementation of the budget.
Accountability for and audit of EU funds is often a shared responsibility between the EU and the member states. More than half the EU budget is spent in the member states as funds under shared management (see link: Financial flows to and from the EU ). National governments draw up plans for the use of EU funds; expenditure is audited largely as a national responsibility. The figure below shows the responsibilities at both EU and national level for the audit of cohesion funds. Similar responsibilities apply to other funds under shared management, with first and second line controls being a national responsibility and third line controls and external audit being an EU responsibility.
Image: ECA Review 03/2024
ECA activities in the field of regularity and the monitoring and control systems of the Commission and the Member States comprise assessments of work on three lines of defence to prevent, detect and correct irregular expenditure under the cohesion policy. The three levels are: the managing authority as the first line of defence (first-line verification of all expenditure based on payment requests from beneficiaries), the audit authority as the second line of defence (verification of the regularity of expenditure based on payment requests submitted to the Commission during the financial year) and the Commission as the third line of defence (document checks, investigation missions and compliance-oriented and thematic checks).
The Treaty on the Functioning of the European Union gives the European Court of Auditors a formal role as the external auditor in this process. Given the national responsibilities for the expenditure of EU funds, some national SAIs provide an insight into the regularity of expenditure in their home countries.