EUROPEANCOURTOF AUDITORS

10NO.NOVEMBER 2014

JournalEuropean Court of Auditors

The contents of the interviews and the articles are the sole responsibility of the interviewees and authors and do not necessarily reflect the opinion of the European Court of Auditors

Cover: - Lazaros S. Lazarou, ECA Member- EU Accountability Conference 2014- Contact Committe 2014

Tous les numéros de notre Journal se trouvent sur les sites / The Journal can be found on : INTERNET : http://eca.europa.eu/portal/page/portal/publications/JournalEU bookshop : http://bookshop.europa.eu/

PRODUCTIONRédacteur en chef / Editor in Chief : Rosmarie Carotti Tél. / tel.: 00352 4398 - 45506 - e-mail : rosmarie.carotti@eca.europa.euMise en page, diffusion / Layout, distribution : Direction de la Présidence - Directorate of the Presidency Photos : Reproduction interdite / Reproduction prohibited

© ECA

Comment vous procurer le Journal de la Cour des comptes européenne?Publication gratuite disponible sur le site de EU bookshop: http://bookshop.europa.euHow to obtain the Journal of the European Court of AuditorsFree publication via EU Bookshop: http://bookshop.europa.eu © European Union, 2014 Reproduction is authorised provided the source is acknowledged/Reproduction autorisée à condition de mentionner la source

102 Reflections on the 2013 Annual Report of the ECA Interview with Lazaros S. Lazarou, ECA Member responsible for the statement of assurance By Rosmarie Carotti

05 EU Accountability Conference 2014 Brussels, 14 October 2014 Key speakers included: Mr Olli Rehn, Vice-President of the European Parliament & former EU Commissioner; Mr Vítor Caldeira, President of the ECA; Ms Ingeborg Grässle, Chair of the Committee on Budgetary Control of the European Parliament; and Mr Kevin Cardiff, Member of the Court By Rosmarie Carotti and Jacques Sciberras, head of private office

11 Contact Committee 2014, 15 to 17 October 2014 Towards enhanced co-operation among EU SAIs By Vítor Caldeira, ECA President

13 The Europe 2020 strategy – an opportunity for closer co-operation By Henrik Otbo, ECA Member 2004 TEN YEARS OF ENLARGEMENT 2014 17 10 milestones to maturity By Giedrė Švedienė, Auditor General, National Audit Office of Lithuania 22 Supreme Audit Office of the Czech Republic – 10 Years Together in the EU Looking back on 10 years of a common journey through the European Union By Miloslav Kala, President of the Czech Supreme Audit Office

*** 25 Special Report N° 13/2014 EU support for rehabilitation following the earthquake in Haïti Interview with Piotr Zych, team leader By Rosmarie Carotti

29 Special Report N°15/2014 Between external borders and internal solidarity: The special report on the External Borders Fund By Katharina Bryan, team leader

32 FOCUS

34 ECA SOCIAL

35 La certification du service d’audit interne de la Cour des comptes européenne Entretien avec Meletios Stavrakis, auditeur interne de la Cour Par Rosmarie Carotti

37 Journée de la traduction 2014 Cour des comptes européenne, 30 septembre 2014 Par Veronica Ardelean, chef de l’unité roumaine de traduction

39 Evaluating the impact of International Financial Reporting Standards in the EU A meeting was organised by the Association of Chartered Certified Accountants (ACCA) and hosted by Theodor Dumitru Stolojan, MEP in the European Parliament in Brussels, on 25 September 2014 By Rosmarie Carotti

02

05

11

13

17

22

25

29

32

35

37

TABLE OF CONTENTS

2

By Rosmarie Carotti

Reflections on the 2013 Annual Report of the ECA

Lazaros S. Lazarou, ECA Member responsible for the statement of assurance

R. C: You are the ECA Member responsible for the annual report published on 5 November 2014, could you say something about this new role?

Lazaros S. Lazarou: I am honoured to be entrusted by the ECA the responsibility for the statement of assurance. In cooperation with the President, my fellow Members and the ECA’s staff, all whom I thank for their support and their contribution. I look forward to continuing to address the challenges ahead. In line with the provisions of Article 287 of the Treaty on Functioning of the European Union, the ECA provides in its annual report a statement of assurance on the reliability of the EU’s consolidated accounts and the legality and regularity of the underlying transactions The statement of assurance is supplemented by specific assessments in chapters for revenue and the main areas of expenditure, including a chapter on performance.

The single biggest task carried out by the ECA is the statement of assurance audit which forms the backbone of the ECA’s annual report. It is the most prominent output of the ECA, appreciated by our stakeholders, drawing significant media attention, and playing a key role in the discharge procedure in both the European Parliament and Council.

It is important that our work remains a relevant tool in the hands of the legislative authorities for exercising their public oversight responsibility. This can be achieved by considering our stakeholders’ needs and expectations as expressed in the discharge and other relevant resolutions, having regard to Treaty provisions, our audit methodology and audit work, possible resource implications and the possibility of closer cooperation with national SAIs in this respect.

R. C.: The statement of assurance is financial and compliance audit. Is there performance audit in the annual report?

Lazaros S. Lazarou: In Chapter 10 we provide an overview of ECA’s performance audits, as presented in special reports, and we also examine the Commission’s reporting on performance. In the 2013 annual report we conclude that when spending EU funds in the 2007-2013 programming period, the focus was in absorption (the need to spend money) and compliance rather than good performance in achieving results.

R. C.: Actually we always talk about one annual report but in reality the ECA publishes together in one document two annual reports. There is a report on the EU budget and there is a report on the European Development Funds which are outside the budget. Are you responsible for it as well?

Lazaros S. Lazarou: Indeed the ECA publishes one document containing two annual reports. One on the implementation of the EU budget and a separate one on the European Development Funds which also provides a statement of assurance under the responsibility of my fellow Member, Mrs Danièle Lamarque. The transactions sampled are selected and validated in just the same way as for the EU budget.

R. C.: Let’s have a look at the 2013 annual report on the EU budget. Which are the areas mostly affected by material errors?

Lazaros S. Lazarou: The 2013 EU budget comprises revenue of € 149.5 billion and expenditure of € 148.5 billion, representing around € 290 for every EU citizen. The estimated error rate, which measures the level of irregularity, for 2013 payments is 4.7%, close to the 4.8% for 2012 and persistently higher than the materiality threshold of 2%.

In 2013, all spending areas apart from administrative expenditure are affected by material error, with the two most error-prone being regional policy, energy and transport with 6.9% and rural development, environment, fisheries and health with 6.7%.

Interview with Lazaros S. Lazarou, ECA Member responsible for the statement of assurance

3

R. C.: What is new in the 2013 annual report compared to previous years?

Lazaros S. Lazarou: There are four key messages in the 2013 annual report. First is that corrective and recovery action by authorities in the Member States and the Commission affecting the transactions we sampled had a positive impact on the estimated error rate. Without this action, the overall estimated error rate would have been 6.3% rather than 4.7%. Of course, authorities in the Member States in particular do more than this: they also reject some claims entirely. We cannot estimate the impact of this action.

Second is that for many transactions affected by error in the shared management areas, authorities in the Member States had sufficient information available to have detected and corrected the errors before claiming reimbursement from the Commission. In 2013 for shared management as a whole the estimated error rate was 5.2% and in the annual report we quantify the extent to which the error rate in specific policy areas could have been reduced. For example, in regional policy, energy and transport the estimated error rate could have been reduced from 6.9% to 3.9%.

Third is that the amounts to be funded from future budgets continue to rise, totalling € 313 billion.

And fourth, as I indicated earlier, the lack of focus on performance in spending EU funds in the 2007-2013 programming period.

R. C.: What do you mean, when you talk about most likely error (MLE)?

Lazaros S. Lazarou: The most likely error rate is an estimate of the payments that have not been made in line with the relevant rules and regulations.In performing our audit work, we use monetary unit sampling because of the huge volume of expenditure. Through the audit work we calculate a most likely error rate for the budget as a whole and we supplement this with most likely error rates for the specific assessments.

R. C.: How does the ECA overview the EU spending in shared management?

Lazaros S. Lazarou: The European Commission has the final responsibility in the execution of the EU budget. Under its supervisory and control role the Commission has the responsibility to ensure that in shared management, amounting to 80% of the EU budget, Member States carry out the necessary checks before submitting payment claims to the Commission and that spending also focuses on performance.

Under the Treaty the ECA has a responsibility to audit the EU budget. We do this through our audit work which is financial and compliance audit and furthermore, according to the Treaty, we have to audit whether the EU money is spent with adherence to the principles of sound financial management (economy, efficiency and effectiveness). That is audited and reported through our special reports.

By auditing the implementation of the EU budget as a whole we conclude how effectively the Commission is discharging its responsibilities. In doing so, we have to audit on the ground transactions in Member States. Moreover, when we conduct performance audit work we visit a number of Member States which are representative, in addition to other special characteristics, to the overall budget for the specific policy under audit.

In our annual report and in our special reports we give examples of findings in Member States. Such examples are typical cases which illustrate the most frequent type of errors/ observations. It is not a view or an opinion on the particular Member State.

R C.: How do you see the future development of the statement of assurance?

Lazaros S. Lazarou: The ECA is considering how best to address the way forward for its annual report. It has been decided that starting with the 2014 annual report there will be an alignment of the specific assessments so as to best reflect the multiannual financial framework (MFF) with the possibility of rotation by and within the MFF headings and also with the possibility of addressing performance issues through audit work for the statement of assurance.

4Interview with Mr Lazaros S. Lazarou continued

At the same time with the publication of the 2013 annual report, the ECA has provided an overview of EU spending in shared management agriculture and cohesion over the 2007-2013 MFF. In this document the ECA highlights financial management and control issues, summarises its audit results and considers the audit challenges of the 2014-2020 MFF. It also seeks to address European Parliament’s request as expressed in the 2012 discharge resolution to provide country specific information in shared management.

The multiannual nature of programmes is also an issue that often comes up in discussions. In this respect, the closure of the 2007-2013 programming period and the mid-term review of the MFF 2014-2020 are set as priority tasks for the ECA.

R. C.: Will performance audit therefore play a greater role in the future?

Lazaros S. Lazarou: In its resolution of 4 February 2014 on the future role of the Court of Auditors, the European Parliament considered ‘that the ECA should build upon the DAS (statement of assurance) model to determine whether results have been achieved and to explain how they have been achieved, so that lessons can be learned and applied in other contexts’.

The ECA’s annual report for the last four years has included a chapter on performance: ‘Getting results from the EU budget’. As part of the 2014 statement of assurance, Chambers I and II are conducting pilot audit work on rural development, and regional policy, energy and transport respectively in which they will examine performance aspects of sampled projects. The results and conclusions of this work on performance may be presented in a dedicated section of the specific assessment chapter or, in the chapter on performance.

Of course we have to consider the extent to which macro level performance (EU 2020 targets, flagship initiatives, priorities, EU policies) can be associated to micro level performance of projects in transaction testing.

R. C.: Enforced certification by Member States is required for agriculture. Will there be something similar also for other sectors? How will the work of the ECA be affected by that?

Lazaros S. Lazarou: The new provisions applicable to shared management for the 2014-2020 MFF require the Member State audit bodies to provide certificates on legality and regularity of transactions, as well as endorse the Member States’ control statistics provided to the Commission. While the requirement has been in place for cohesion since 2007, for agriculture, this is a significant change in the responsibilities of the audit bodies.

In its Opinion No 2/2004 on the Commission’s single audit model, the ECA set out a number of general principles for internal control systems to operate in accordance with the ‘single audit’ model.

The ECA’s statement of assurance is based on the examination of individual transactions. Although the ECA also examines the different elements of the Commission’s control pyramid (which includes the Member States national and local authorities control systems), it does not rely on the results, primarily because of issues of timing and reliability.

The ECA will continue to examine the different elements of the control pyramid during the course of its audit work and engage with the Commission so that, when the conditions are right, we can make more use of the Commission’s control pyramid.

R. C.: Sir, we thank you for this interview.

Lazaros S. Lazarou: Thank you for the opportunity to reflect on ECA’s 2013 annual report and the challenges ahead.

5

By Rosmarie Carotti and Jacques Sciberras, head of private office

EU Accountability Conference 2014 Brussels, 14 October 2014

With this conference, the first of its kind, the ECA invited an open discussion about the audit and accountability arrangements in place in the EU and ways of overcoming gaps and overlaps inspired by its recently published landscape review on the subject. As Ingeborg Grässle, MEP, said: “At last an initiative to examine certain all-too-familiar

shortcomings. I am extremely glad this is happening”.

Olli Rehn, MEP and former Commissioner felt: “Today’s seminar is an important step that the Court of auditors has taken with the Landscape review. I believe that it provides plenty of food for thought for having more effective auditing in the future.”

In his opening remarks Vítor Caldeira, ECA President, pointed

out that democratic scrutiny and efficient public audit go hand-in-hand. They help governing authorities improve their use of public funds, and provide legitimacy by explaining to citizens what progress is being made towards important EU objectives. He warned against the risk of new mechanisms being set up without adequate provisions for democratic scrutiny or public audit.

It is the ECA’s mission to contribute to improving democratic accountability by putting in place the right arrangements, which also increasingly depend on a high degree of coordination between multiple layers of governance and scrutiny.

The ECA prepared the “Landscape Review of EU Accountability and Public Audit Arrangements”, for which Kevin Cardiff is the reporting Member. (See the October 2014 issue of the ECA Journal).

Key speakers at this first high-level ECA conference included: Mr Olli Rehn, Vice-President of the European Parliament & former EU Commissioner; Mr Vítor Caldeira, President of the ECA; Ms Ingeborg Grässle, Chair of the Committee on Budgetary Control of the European Parliament; and Mr Kevin Cardiff, Member of the Court.

The message of the Landscape Review

The aim of the ECA’s Landscape Review is to analyse the accountability arrangements for democratic scrutiny and how public audit supports this process effectively. The review covers a broad range of EU policies, instruments, activities and institutional arrangements. The review makes an assessment of who is accountable for what, to who are such entities accountable – are they accountable to parliament, who is the auditor and what is the scope of such auditor’s work?

In his introduction Mr. Kevin Cardiff explained that a first conclusion of the Landscape Review is that in the context of multiple layers of governance, multiple layers of democratic scrutiny, and multiple layers of audit, such complexity inevitably leads to gaps and overlaps in accountability and audit arrangements.

The review identifies six areas where challenges emerge: coordinated activities, the multispeed nature of the EU, partnerships, the arrangements for EU institutions and bodies, the management of the EU budget, and accountability for results of non-budgetary instruments.

The EU coordinates a number of activities between the Member States: for example the Europe 2020 strategy or economic and fiscal governance under the European Semester. Member States have also established instruments under intergovernmental agreements but which also assign important roles to EU institutions. Most of the implementation depends on the Member States and the accountability structure is rather fragmented.

The multispeed nature of Europe refers to different sub-sets of Member States participating in certain policy areas. The Eurozone is one example, Schengen is another. This creates very complex governance structures which is the source of

Ingeborg Grässle, MEP

Olli Rehn, MEP

Kevin Cardiff, ECA Member

6EU Accountability Conference 2014 continued

significant debate in terms of the configuration of democratic institutions to provide the necessary oversight and legitimacy. This cascades down to the audit landscape as well.

The EU partners with a number of third parties, which include: non-Member states, international organisations, as well as private investors through public-private partnerships and other financial instruments. Accountability depends on the agreements made with such parties and on the governance and accountability culture of the partners themselves.

The EU has over 60 institutions and bodies. Arrangements in place differ based on clusters of entities: institutions, agencies, joint undertakings, and special institutions like the ECB and the EIB. The challenge in this respect emerges from inconsistent arrangements for parliamentary scrutiny and for public audit which at times also leads to disproportionate levels of scrutiny.

In terms of management of the EU budget, the Landscape Review says that there are adequate provisions for democratic scrutiny of the budget and adequate public audit arrangements. But in terms of funds under shared management, performance could be improved with more frontline scrutiny and audit at Member State level.

In terms of accountability for results, the main challenge relates to non-budgetary instruments. Most of the EU policies do not depend only on the EU budget, but predominantly on national budgets. Assessing results of such policies requires an assessment of expenditure of all the different sources of finance linked to that policy.

The second part of the Landscape Review deals with the financial crisis. Europe experienced a domino effect from financial, to fiscal, to monetary, to economic crisis which led to a crisis of confidence. The EU responded to each of these domains with a number of measures all created in a relatively short time. The result was more bodies and structures created, new sets of rules introduced and responses which depended on a mix of EU and non-EU instruments. The response to the financial crisis is an example of the challenges that emerge in terms of accountability and public audit.

What should be the remit of auditors at EU and national level?

Olli Rehn, MEP and former Commissioner said, “I believe it should be the basic principle of audit that democratic legitimacy, accountability and audit are ensured at the level at which the decisions are taken and implemented. The landscape review clearly provides a critical account of the current arrangements. At the EU and Eurozone level this means that the task should be carried by the European Court of auditors and scrutinised by the European Parliament”.

He explained that both the ESM (European Stability Mechanism) and the Fiscal Compact had been concluded in intergovernmental setting and thus outside the EU treaties. The ECA has the mandate to audit the annual budget of the EU, but not the ESM, which has a subscribed capital of five times the EU budget. Furthermore the ESM treaty does not include any role for the European Parliament.

Conclusion

In its Landscape Review the ECA suggests five tracks for reflection. How can scrutiny become more collaborative between Parliaments and auditors? How can rules be more consistent? How can scrutiny be improved at Member State level? How can the focus of accountability be shifted from inputs to results? How can costly audit overlaps be avoided?

All this requires a transformation of both the democratic scrutiny and the audit landscape. On the one hand the EU has more powers assigned and complex systems to manage. This requires equally strong accountability and legitimacy arrangements at EU level. To gain citizen’s trust in the EU the balance between these two dimensions needs to be restored to a new accountability equilibrium.

Ingeborg Grässle, MEP is confident that these points of reflections will also be taken up in the Budgetary Control Committee.

The ECA, on its part, is ready to face the new challenges and calls upon the help of the other European institutions and the national audit institutions.

7

The conference programme

The ECA conference on EU accountability provided an opportunity for stakeholders to discuss a number of issues highlighted in the Landscape Review on EU accountability and audit arrangements. It was structured along the lines of an opening session, four parallel thematic sessions, and a closing session.

The opening session consisted of a keynote speech by Mr. Olli Rehn, Vice-President of the European Parliament and former Commissioner, followed by Mr. Vitor Caldeira, ECA President, Mr. Kevin Cardiff, ECA Member, and Mr. Jacques Sciberras, team leader for the Landscape Review. All interventions outlined the main purpose and findings of the review, its importance in the aftermath of a dramatic financial crisis, and the realization of the centrality of democratic scrutiny, the importance of public accountability, and the role of auditors to support this process.

The concluding session was addressed by Dr. Ingerborg Grassle, chair of the Budgetary Control (CONT) Committee of the European Parliament, who congratulated the ECA for the initiative, and referred to a number of key messages from the Landscape Review and the conference itself as important themes for reflection by the CONT Committee in Parliament.

Following is an outline of the main points discussed during the four different sessions of the conference.

Parallel 1: Accountability within the EU

From left to right: Manfred Kraff, deputy Director General, DG Budget; Henrik Otbo, ECA Member; Dr Julie Smith, Cambridge University;

This session addressed two key aspects of accountability. The first intervention addressed the issue of accountability for performance – in particular, how to account for policy and regulatory impact. The second theme addressed accountability for EU funds under shared management with member States. This session was chaired by Mr. Henrik Otbo, Member of the Court.

Mr Manfred Kraff, deputy Director General (DG Budget, European Commission), presented a paper on different initiatives and reports currently being provided or developed by the Commission in relation to giving account for its performance in different policy domains.

He explained how accountability is closely related to providing information, and how progress has been made in this respect over recent years. Art 318 TFEU requires the Commission to report on the evolution of the EU’s finances based on the results achieved, to complement the existing annual activity reports and annual management plans of different directorates. In this regard, standing instructions should contribute to streamline and improve the reports which should cover policies leading to both spending and non-spending activities.

However, performance aspects go beyond accountability and also impact the budgetary process. The Commission aims at developing a performance based budgeting approach, which is still in a very embryonic stage. The plan is to develop this approach through an inter-institutional working group (IIWG) to identify best practices, feasibility of obtaining relevant and important data, and the cost related to such work.

8EU Accountability Conference 2014 continued

Dr. Igor Šoltes, MEP and vice-chair of the EP Committee on Budget Control (CONT) discussed the question of how accountability for shared management can be addressed at Member State and EU levels.

Mr Šoltes explained the importance that all institutions

play their role when in partnership – such as is required by shared management, and this depends crucially on the quality of frontline governance, the clarity of objectives, and the level of complexity of certain eligibility criteria which determine compliance. He argued that an appropriate balance between complex rules and effective governance towards achieving key objectives must be maintained.

In general there is a need for more cooperation in terms of audit between ECA and MS SAIs. He recalled that within the Contact Committee of the Heads of EU SAIs already ten years ago a working group had addressed challenges related to Structural Funds and had identified weaknesses in frontline governance as a key issue. He considers cooperation and coordination of work between EU SAIs as crucial for effective scrutiny of funds under shared management, and urged SAIs to continue taking initiatives similar to those undertaken in the past within the Contact Committee.

The discussant, Dr. Julie Smith argued that better coordination and coordination needed between the EU and MS levels, however complexity of EU rules makes it difficult to audit them and to give a clear account by the EU to its citizens.

Parallel 2: Accountability of central banks and supervisors

This session addressed two key aspects of central banks and banking supervision in the Euro area. The first intervention addressed the issue of accountability of central banks and supervisory bodies – what is the role of different auditors at EU and national levels? The second theme addressed accountability of the ECB to the European Parliament. This session was chaired by Mr. Neven Mates, Member of the Court.

Mr. Claes Norgren, Auditor General of the Swedish National Audit Office, made a presentation on the role of auditors at EU and national level particularly in the context of the European Central Bank and all national Central Banks within the Single Supervisory Mechanism (SSM). He argued that when assessing the accountability and audit chain of this new system against a reasonable set of criteria as identified by the Court’s Landscape Review or by INTOSAI, one finds that there are a number of areas that need to be improved in the accountability structure. There are unclear definitions in the roles and responsibilities of different parties, management assurance about achievement of policy objectives cannot be audited by ECA alone, and scrutiny by parliament and how they are able to take corrective actions is also unclear.

Prof. Mark Hallerberg, from the Hertie school of governance gave an overview of the ECB and its dialogue or scrutiny by the European Parliament. He framed the level of accountability in terms of whether the ECB meets the expectation to inform the public about its decisions and its performance and whether it can justify its decisions. It also depends on whether and to what extent Parliaments can take corrective actions when the ECB does not fulfill its mandate satisfactorily.In his conclusions, Prof, Hallerberg argues that the current framework provides for a high degree of policy dialogue which is a good step towards greater transparency and accountability. However as the ECB is assigned with more responsibilities, more oversight powers are necessary.

The discussant, Mr. Giles Noblet, Deputy Director General, International & European Relations of the ECB outlined various treaty provisions in relation to the ECB accountability and external audit requirements, explaining how the ECB meets such requirements in practice.

From left to right: Gilles Noblet, ECB; Claes Norgren, Auditor General of Swedish National Audit-Office, Neven Mates, ECA Member; Prof. Mark Halleberg, Hertie School of Governance

Dr. Igor Šoltes, MEP

9Parallel 3: Accountability for crisis and post crisis structures

From left to right: Prof. Brigid Laffan, European University Institute; Gay Mitchell, former MEP; Kalin Anev Janse, Secretary General ESM

This session addressed accountability for crisis and post crisis structures, in particular those EU structures set in response to the financial crisis, as well as other instruments which are based on intergovernmental agreements such as the ESM and ESFS. This session was chaired by Mr. Gay Mitchell, former MEP and author of ‘By Dail Account, auditing of government, Past, Present and Future’.

Professor Brigid Laffan, from the European University Institute, pointed out that crisis leave legacies and that citizens realised in the crisis that this is part of their fate – this in particular for the northern Europeans who were not entirely happy about them having to share the burden (European integration has not been a win-win for all). She argued that formal legitimacy in the EU is strong (very strong legal framework) but that the output legitimacy (“for the people”) has been severely undermined. She stressed that accountability is necessary for legitimacy and that it cannot avoid complexity. The challenge is to work with the complexity.

She argued that accountability should be placed where decisions are taken and where they manifest themselves. She pointed out that national parliaments are important in terms of coordinated actions such as the European Semester or the Two and the Six pack and that there is a risk of undermining national parliaments from their political roles and responsibilities. The year 2017 will be very important in this respect since elections will be held in France and Germany and the British referendum will most likely take place.

Mr. Kaline Anev Janse, Secretary General of the ESM, explained how the ESM has accomplished its task – all countries originally participating stayed

in the euro and those receiving money from it, are “champions in reforms”. It has a board of auditors which has exhaustive audit rights and reports frequently to its stakeholders (Ministers of finance of the participating Member States). He considers that the ESM, compared to similar institutions, has a high level of governance and audit oversight. In addition, it welcomes any request to meet, on a voluntary basis, with the European Parliament and national parliaments of participating Member States.

Parallel 4: Accountability for leveraging of EU funds with outside participation

This session addressed accountability for leveraging of EU funds with outside participation, such as that that through Public-Private Partnerships (PPPs) or financial engineering instruments such as those developed by the European Investment Bank and European Investment Fund. This session was chaired by Mr. Gijs de Vries, St Anthony’s college Oxford, and former ECA Member.

Professor Christopher Bovis, from the University of Hull addressed the issue of democratic control over Public-Private partnerships. He outlined a number of important considerations in relation to PPP control, such as the issue of risk treatment, affordability, legal structure and approach to monitor performance and results. He argued that PPPs may serve different purposes and be evaluated under different criteria: their contribution towards better value for money, their effect on incentivizing investment in certain sectors, and their long term refinancing requirements. Furthermore, accountability should also consider issues of how PPPs are treated as assets on national accounts, how to manage monopolistic positions in certain markets and control profit levels, and last but not least how best to control PPPs through soft or hard law approaches.

From left to right: Gijs de Vries, St Antony’s College Oxford and former ECA Member; Jonathan Taylor, Vice-President of EIB; Prof. Christopher Bovis, University of Hull

10EU Accountability Conference 2014 continued

Mr Jonathan Taylor, Vice-President of EIB presented the governing structure of the EIB, and the structure of audit. He explained that the EIB shareholders consist of 28 EU Member States, is controlled by a Board of Governors made up of 28 EU Finance Ministers. The bank is audited by an independent Audit Committee consisting of 6 members and which is serviced by external private audit firms. The Committee reports to the Board of Governors. He also outlined other internal control functions, including units for internal audit, fraud investigations, compliance, and operations evaluations. All presentations of the speakers at the conference are available on the ECA Website http://www.eca.europa.eu/en/Pages/NewsItem.aspx?nid=5224Landscape Review and other material are available on the ECA Websitehttp://www.eca.europa.eu/en/Pages/NewsItem.aspx?nid=5076

The location, the Committee of the Regions in Brussels was put at the ECA’s disposal by Jiří Buriánek, Secretary General of the Committee of the Regions

Jiří Buriánek, Committee of the Regions’ Secretary General: "We attach great importance to your work. I am very appreciative of the fact that you have organised this EU accountability conference, and I hope it will become a regular event at this institution."

11Contact Committe 2014 Luxembourg, 15 to 17 October 2014

By Vítor Caldeira, ECA President

As announced in last month’s edition of the Journal, the ECA hosted the annual meeting of the assembly of the heads of EU supreme audit institutions (SAIs), better known as the Contact Committee, from 15 to 17 October. The discussion focused on how best to enhance co-operation, including identifying those activities worth pursuing together, and deciding the form this could take in practice.

Mr Šoltes, Vice-Chair of the CONT Committee of the European Parliament and permanent rapporteur for relations with the ECA, presented the European Parliament’s Resolution of 4 February 2014, notably its part on enhancing co-operation between national SAIs and the ECA. As former head of the SAI of Slovenia, Mr Šoltes is familiar with the work of the Contact Committee – he welcomed the fact that many of the co-operation issues mentioned in the resolution have already been addressed, although could be better known, and informed the participants that he was looking forward to co-operating with the Contact Committee. Interestingly, although not discussed by the Contact Committee, Mr Šoltes also touched upon the issue of accountability and public scrutiny of

the expenditure of the Council of the European Union – a topic also addressed in the ECA’s landscape review of EU accountability and public audit arrangements. The discussion on enhancing co-operation continued with a presentation of the ECA’s landscape review, which identifies risks associated with new mechanisms being set up without sufficient provisions for transparency, accountability and audit.

In the ensuing discussions, heads of SAIs agreed that there are benefits in further exploring possibilities for enhancing co-operation among the Contact Committee members. In this context, the Contact Committee established an early warning mechanism for monitoring EU developments, informing its member SAIs and proposing appropriate action.

Heads of SAIs also agreed that enhanced co-operation should extend to concrete audit activities, which can make an important contribution to the effective implementation of policies and measures managed simultaneously at EU and national levels. In this respect, the Contact Committee took

President Caldeira welcoming participants to the meeting

Towards enhanced co-operation among EU SAIs

12Contact Committe 2014 continued

particular account of some of the elements of the ECA’s landscape review, as described in the next paragraph.

The setting up of the banking union, particularly the Single Supervisory Mechanism, is an example of an area where EU SAIs see a risk of possible accountability and audit gaps. The heads of SAIs agreed to explore the functioning of the new banking supervision and resolution mechanisms at both EU and national levels. The Europe 2020 Strategy is another example of a complex framework implemented at EU and national levels. Considering the European Commission’s mid-term review of the Europe 2020 strategy planned for 2015, members of the Contact Committee decided to address the issue by initiating collaborative audit work. The Contact Committee’s working body for this issue – the Network for Europe 2020 Strategy Audit – will play an important part in this process.

One of the working sessions organised within the framework of the meeting provided the opportunity to discuss the ECA’s view on the first EU Anti-corruption report. Mr Nunes de Almeida, Director for Public Procurement of DG MARKT at the European Commission, contributed to the discussion. The Heads of SAIs agreed to explore if there was scope for common work in fighting corruption, in particular in public procurement.

Another area which might have a significant impact on EU Member State administrations is

the European Commission’s initiative to develop European Public Sector Accounting Standards (EPSAS). The Contact Committee, who had already in 2013 established a task force to closely monitor developments in this field, agreed to continue this monitoring and contribute to the EPSAS project where appropriate.

The heads of SAIs also took stock of activities undertaken by the individual members of the Contact Committee and its working bodies. The reporting session included, among others, a presentation on the activities of the Network of SAIs of EU Candidate and Potential Candidate Countries, whose representatives attended the meeting. The status outline of activities of Contact Committee working bodies is available on the website of the Contact Committee.

The Contact Committee meetings traditionally include a session in which SAIs share their national experiences of auditing EU funds. The focus this year was Denmark’s absorption of EU funds, the preparation by Poland for implementing the structural policy in 2014-2020, and the Lithuanian SAI’s experience of performing the function of audit authority for EU structural assistance.

The next meeting – to be hosted and chaired by the State Audit Office of Latvia in June 2015 – will give the heads of SAIs the opportunity to follow-up on the decisions taken in Luxembourg.

13By Henrik Otbo, ECA Member

The Europe 2020 strategy – an opportunity for closer co-operation

On 7 April 2014 I attended a hearing on the Lisbon strategy in the European Parliament Committee on Budgetary Control. An extract of my speech “The Lisbon strategy – seen through the Court’s performance audits” was subsequently included in the June 2014 number of the Journal. In this article I reflect on the successor of the Lisbon strategy - Europe 2020 - the challenges affecting its successful implementation and the need, as well as the opportunity, to work closer together with national supreme audit institutions.

The Europe 2020 strategy, formally adopted by the European Council in June 2010, reflects the changes in EU's situation following the economic crisis. It builds on lessons learned from the Lisbon strategy and focuses on providing smart, sustainable and inclusive growth in the EU. Where the Lisbon strategy suffered from a lack of ownership and implementation, Europe 2020 was established within a framework which aimed at providing stronger governance, regular and transparent monitoring, leadership at the highest political level (the European Council) and new Commission instruments.

The targets established for the strategy are politically binding and should be met by the EU in 2020:

1. Employment: 75% of 20 to 64 year old men and women to be in work

2. Research and Development (R&D): 3% of GDP to be invested in the R&D sector

3. Climate change and energy sustainability: Reduce greenhouse gas emissions by 20% compared to 1990 levels, increase the share of renewables in final energy consumption to 20% and increase energy efficiency by 20%

4. Education: Reduce the rates of early school leaving to below 10% and at least 40% of 30 to 34 year olds to have completed tertiary or equivalent education

5. Fighting poverty and social exclusion: Reduce poverty by lifting at least 20 million people out of the risk of poverty and social exclusion.

Europe 2020 applies to the Union as a whole. The strategy establishes a partnership between the EU and its Member States, and as such, its success depends on the commitment and involvement of all parties concerned. Europe 2020 is supported by the single market, the multi-annual financial framework (MFF), EU's trade agenda and the reform programmes of the Member States. Seven flagship initiatives, directly linked to the five headline targets, have been set up to promote skills, youth employment, innovation, the digital economy, industry, resource efficiency and poverty reduction.

While Europe 2020 does not have its own budget, EU funds are channelled towards the relevant goals via existing EU programmes. The 2014-2020 MFF enables the European Union to spend up to €960 billion in commitments and €908 billion in payments over the next seven years. A strong emphasis is placed on expenditure aimed at boosting growth and creating jobs. However, it is important to bear in mind that the main burden of implementation as well as funding falls on the Member States. Compared to the national budgets, the EU budget can only play a smaller, but nevertheless, important part in encouraging reforms and exploit synergies as well as the dissemination of replicable solutions across the EU.

In the March 2014 communication “Taking stock of the Europe 2020 strategy - for smart, sustainable and inclusive growth”, the Commission concludes that progress on the 2020 targets has so far been mixed. The Commission assesses that EU is on course to meet or come close to

Henrik Otbo, ECA Member

14

its education, climate and energy targets. But given the magnitude of the crisis, Member States are not on track to meet employment, research and development or poverty reduction targets, although results and forecasts vary widely across Member States.

Looking at a few of the recent special reports, related to Europe 2020 targets, the Court has identified a number of weaknesses affecting the successful implementation of Europe the 2020 policies. A fundamental weakness, noted in several audits across different policy areas, is a disproportionate focus on spending, rather than spending well, and only a limited focus on the results to be achieved:

• The Court’s special report No 6/2013 examined the measures for diversifying the rural economy in the EU and support growth, employment and sustainable development in rural areas. The Court concluded that the Commission and the Member States have, only to a limited extent, achieved value for money, as aid was not systematically directed to the projects most likely to provide good results. Too often, and particularly at the start of the programming period, the selection of projects was driven more by the need to spend the allocated budget than by the quality of the projects.

• The Court’s special report No 9/2014 examined the EU investment and promotion support to the wine sector. The audit revealed that it was not possible to demonstrate to what extent the measure had contributed towards the competitiveness of EU wines. It further showed that Member States were not sufficiently selective when choosing projects for funding. The Court also noted a real risk that the budget for the new programming period is set too high, providing insufficient incentive for Member States to apply sound financial management.

• The Court’s special report No 6/2014 examined the contribut ion of cohesion policy funds towards the achievement of Europe 2020 targets for renewable energy. The Court found that the overall

value for money had been limited and that improvements were needed if the funds were to make a maximum contribution towards the Europe 2020 target for the use of renewable energy. Programmes did not explain how the EU funds contributed to reaching renewable energy targets and the cost-effectiveness of the used funds had not been sufficiently ensured.

• The Court’s special report No 7/2014 examined ERDF support to the development of business incubators. The audit showed that the performance of the audited incubators was modest and thus their contribution towards developing new enterprises, resulting in growth and jobs, disappointing. At the level of the managing authority, there was too much focus on output and not sufficient attention paid on the scope and relevance of the services provided by incubators as well as their finan-cial sustainability. In most cases, the results achieved had not been evaluated.

• The Court’s special report No 15/2013 on the effectiveness of the ‘Environment’ component of the LIFE programme, directly managed by the Commission, further reflects how good performance can be challenged by having to spend in accordance with national allocations of the budget. This audit found that the lack of a mechanism to target resources on relevant, pre-selected objectives had diminished the impact of the invested funds. The indicative national budget allocations had hampered the selection of the best projects, as projects were not only selected based on their merit but also on their Member State of origin. While some projects had achieved positive results, the programme had failed in fulfilling its fundamental role in ensuring an effective dissemination and replication of successful projects across the EU, thus reducing its overall impact.

This primary focus on spending does not provide for the best possible results and the highest possible impact for EU taxpayers. In the context of the 2014-2020 MFF negotiations, the Commission proposed a common performance framework for

The Europe 2020 strategy – an opportunity for closer co-operation continued

15

both the Commission and the national authorities. However, based on an analysis of the main regulations governing the 2014-2020 programming period, the Court has found that there is a risk that the new framework will not succeed in shifting the focus from spending on to results. Furthermore, the Court has noted that a multi-annual budgetary system in which funds are pre-allocated to Member States, and the absorption of these funds becomes an implicit objective, reduces the need and the incentive for Member States to focus on good performance.

Coming back to the Commission’s communication from March 2014, taking stock of Europe 2020, the document kicked off the mid-term review process of the strategy. Following this communication, the Commission held a public consultation, open from May to October 2014, with the aim of gathering the lessons learned from the first four years of implementation. The next steps are the presentation of the Commission’s proposals for a mid-term review of the strategy, foreseen in early 2015, followed by a discussion at the 2015 spring European Council.

As reflected in the number of reports linked to Europe 2020 topics, the strategy is a key priority for the Court and thus a reference points when setting up its annual work programme. Due to the importance of the strategy and the midterm review process, the Court, in its 2014 Annual Report, Chapter 10, will focus on Europe 2020 issues, i.e. the Commission’s monitoring and reporting on the strategy as well as some of the new performance elements relevant to the 2014-2020 programming period. One of these elements will be the partnership agreements between the Commission and the individual Member States. These agreements are at the heart of the revised framework governing disbursement from the European Structural and Investment (ESI) funds and set out how the Member State intends to use the available EU funding to achieve its objectives - with more detail provided in the lower level programmes. I have therefore encouraged dialogue and co-operation with national Supreme Audit Institutions (SAIs) in order to gain their input and knowledge as to the particular challenges of their Member State.

The role of Chapter 10, “Getting results from the EU budget”, is to take a "macro view" of significant performance aspects noted in the implementation of the EU budget. An essential element of the chapter, which will continue to develop in the coming years, is its cross-cutting nature, covering several policy areas, allowing a more horizontal view than the individual special reports.

However, auditing the implementation of Europe 2020 is not just an issue for the Court. Just as the implementation of the strategy is a partnership between EU and its Member States, so should the audit of the performance of the strategy be a partnership between the European Court of Auditors and the SAIs. For that reason, the priorities defined in the Court’s strategy for International co-operation in 2014 and beyond include a more active role in the Network on Lisbon/Europe 2020, established in the context of the Contact Committee (CC) of the Heads of the SAIs, as well as the identification of topics which could be addressed by SAIs in a collaborative way.

In its June 2014 meeting in Vienna, the CC Network on Lisbon/Europe 2020 concluded that SAIs should reinforce the focus on Europe 2020 targets at national level by assessing the resources used, the results achieved and the causes for the slippages. SAIs should also promote and encourage:

• a stronger performance culture in the Member States;

• a better implementation of the strategy;

• that results and impact are just as important as compliance;

• that absorption should not be the overriding priority when allocating EU funds; and

• that implementing bodies increase their focus on ensuring adequate performance data.

By encouraging best practices in these areas, SAIs can make an important contribution to the implementation of Europe 2020. The network also supported the possibility of performing co-ordinated or parallel audits in this area in addition

16The Europe 2020 strategy – an opportunity for closer co-operation continued

to lighter forms of co-operation. These conclusions were supported by the Heads of the SAIs during their meeting in Luxembourg in October 2014.

Notwithstanding the expectations of our stakeholders, enhanced co-operation with SAIs could bring many benefits. For one thing, the audit rights and mandates of national SAIs and the Court would be complementary and would allow more comprehensive audit results – adding value to our political stakeholders. In addition, the national SAIs have significant knowledge as to the risks and weaknesses affecting their particular Member State - accumulated during years of auditing national funds as well as the work performed on EU funds under shared management. As for the Court, it has a unique insight and access to the Commission, other EU Institutions and bodies, as well as being in a position to take a cross-cutting view of the performance of all Member States.

Coming to the end of the article, I would like to re-emphasise a few key points:

Persistent weaknesses have affected the implementation of the Lisbon strategy and Europe 2020. Although results and forecasts vary, Member States are clearly not on track to meet employment, research and development or poverty reduction targets. During the “second term” of the strategy it is thus important that:

• Member States, as well as the Commission, increase the focus and priority given to achieving results, rather than just spending money. Regrettably, the current budgetary and legal framework does not fully support this shift of focus; hence,

• SAIs can make an important contribution by continuing to promote a strong performance culture in their Member States - not only when it comes to national funds but also when managing EU funds;

• Enhanced co-operation between the SAIs of the Member States and ECA in relation to Europe 2020 issues will benefit everybody.

17

The practical issues relating to the implementation of the new legislation were laid out in a 5-year Strategic Development Plan developed with the assistance of SIGMA experts and covering the period of August 2001 – December 2006.

Early in 2002 Public Auditing Requirements were approved setting general public auditing principles: the value for money (performance) function started as a new function of the audit, and the first ideas about systemic approach to information systems audits appeared.

The Information Technology Strategic Development Plan for 2002-2006 was approved in September 2002, indicating how the IT function should support general strategic activities and how it should be reshaped to do so effectively. It was followed by the 5-year Strategic Development Plan of the NAOL, the Personnel Development Strategy, and the Training and Qualification Improvement Strategy – all approved by the end of 2002.

Since 2003 the National Audit Office of Lithuania has performed a new audit function - State Budget revenue audit; it has also acted as an audit authority of the EU financial assistance envisaged in the EU Regulations.

2. Learning from others

The main strategic documents approved by that time were extremely useful for the NAOL. They allowed us to select and use the necessary instruments from a range of tools, mainly international initiatives of cooperation with the Supreme Audit Institutions of Sweden, Denmark, the United Kingdom, Norway, Finland, as well as the first PHARE projects, and many committees and working groups of INTOSAI and EUROSAI.

Each partner shared the best they had with the National Audit Office of Lithuania and we acknowledge their support:

• National Audit Office of the United Kingdom. Cooperation since 1994, but made a massive contribution to all activity areas of the NAOL during the first and the second PHARE projects from 2002 to 2005.

TEN YEARS OF ENLARGEMENT

20142004

Giedrė Švedienė, Auditor General, National Audit Office of Lithuania

10 milestones to maturityBy Giedrė Švedienė, Auditor General, National Audit Office of Lithuania

The most significant achievement of the National Audit Office of Lithuania (hereinafter NAOL) during the years 2004-2014 was our journey towards institutional maturity, competence, innovation, trust, and respect. Joining the EU on May 1, 2004 with the other 9 new EU members was not only a quantitative jump, but also served as the impetus towards further development.

Meeting the obligations of EU membership was the first milestone in Lithuania’s process of positive transition. At this time, we were sufficiently prepared for change, consequently looking ahead for momentum and the possibility to execute the transformation and grasp the result of excellence.

The period of 2004-2014 was meaningful, because important changes took place at the NAOL, which brought new tasks and responsibilities, enriched with increasing experience and confidence with added-value following each effort and engagement.

Institutional maturity does not happen by itself, it has to be enabled, and there are significant milestones to highlight and share with others; the Lithuanian story might be repeated elsewhere, bringing due maturity, and even better results. 1. Setting the direction

The National Audit Office of Lithuania effectively utilized the pre-accession period with fundamental national decisions supported by numerous international initiatives. The key outcome of this period was the enforcement of the new Law on the State Control in 2001, which changed the profile of the NAOL from that of revision and control to a pure audit function.

18

From left to right: Delegations visiting NAOL in 2007-2008 led by Mr Edward Leigh, Chairman of PAC, UK Parliament, Ms Karin Lindell, Auditor General of Sweden, and Mr Henrik Otbo, Auditor General of Denmark.

10 milestones to maturity continued

• National Audit Office of Denmark. One of our longtime partners since 1994, taking part in both PHARE projects. Contributed a lot to our IT system and IT audit; we were introduced to the use of TeamMate at the National Audit Office of Denmark back in early 2003.

• State Audit Office of Finland. Our good partner and adviser on EU audit matters and IT audit since 2003.

• Office of the Auditor General of Norway. A series of seminars were offered between 1997-1998 which focused on State debt auditing, auditing the financial accounts of central government offices and state-owned enterprises, which was new to us. Also, expertise was shared regarding the auditing of electronic data processing and understanding how IDEA works in financial audit.

• National Audit Office of Sweden. The first cooperation projects were in 1995-1998, and a significant cooperation agreement was signed in late 2000, resulting in a lot of activities during 2001-2002, among which were the auditing of EU funds and information technology strategic issues. The National Audit Office of Sweden became our partner in the first PHARE project.

3. Building audit tools and instruments

Prior to joining the EU on May 1, 2004, we had already taken steps to be prepared – the NAOL had a legal mandate to perform audit and some experience was shared by our colleagues on how to do this. From then on, we had to build our own tools and instruments, enriching the legal framework through methodological tools, audit support, and quality assurance instruments, as well as forming the relevant decision-making structures to support the audit function and to get the most out of it.

As far as methodology is concerned, the Financial Audit Manual was approved by the Auditor General in October 2005, followed by the Performance Audit Manual in February 2006, and later, the Methodological Recommendations for IS Audit in April 2006. These key methodological tools have been regularly updated while the Methodological Recommendations for IS Audit were reworked into the IS Audit Manual approved in 2013.

Together with methodology, necessary instruments were introduced to improve audit quality. In September 2004, an external quality review for audit reports was started, during which the selected audit reports were examined and assessed against quality criteria by independent reviewers. Later, from 2009 each performance audit had to pass a quality assessment before being signed. This enabled us to remove the main mistakes, while at the same time identifying and encouraging good practices.

IT instruments were increasingly used to support audit management and documentation. We have chosen TeamMate for audit documentation, IDEA for financial audit data extraction and analysis; IT systems for audit management and follow-up of audit recommendations were introduced in 2005-2006.

An important instrument strengthening the accountability for audit results was Audit Committee set up at the National Parliament in December 2004. The Audit Committee granted additional powers to the NAOL, while auditees started to implement audit recommendations more carefully.

4. Strengthening institutional processes

The next years were marked by the Public Audit Strategy for 2006-2010.

19“To promote accountability in the public sector, as well as management that is oriented towards results and public needs, and progress in financial management and control systems” – such strategic goal was established by the Public Audit Strategy for 2006-2010.

This goal was important, because it was aimed not only at building internal competencies at the NAOL to perform audit as requested by the mandate, but also to use audit as an instrument for initiating positive changes in the public sector.

Internal mechanisms had to be developed or improved in order to make the office more attractive to the Parliament, auditees, and the general public. The NAOL was building its own competence, applying international standards, modern management models, or adopting best practices.

The Strategic Planning and Risk Management Commission, the IT Management Committee, strategic plans at institutional and functional levels, the annual planning and reporting obligation of all audit and administrative units to the Council of the NAOL were all used as everyday instruments, and the office gained value from this.

The latest ongoing activity to be completed in a couple of months is the introduction of a quality management system complying with ISO 9001.

We became able to recommend that our auditees not only comply with the legal acts, but having used certain good practices, we were able to talk about the benefits and risks of the practical implementation of our recommendations. We were no longer seen as an institution suggesting theories, but rather as a provider of practical examples tested in our own environment. This enables us to acquire the trust of our auditees.

5. Measuring performance

To assure that our institutional processes are relevant and mature and to measure their effectiveness we used peer-reviews, self-assessments or international cooperation activities.

SIGMA experts who carried out a peer review of the National Audit Office in 2005-2006 noted that “the National Audit Office has become a modern and effective authority which deserves the name of the Supreme Audit Institution, it has developed rather good audit approaches, and has managed to make good use of technical assistance provided thereto.

Your positive impact in the public sector should also be pointed out.”

In addition to the SIGMA review, a controlled self-assessment of the IT function (activity of EUROSAI IT Working Group) was performed in 2006 to discover the maturity of the most significant IT processes supporting audit and to suggest activities for increased maturity. This lead to a realistic IT Strategy for 2007-2011. Self-assessment of IT audit function (another activity of EUROSAI IT Working Group) was performed in 2007 suggesting possible development directions for the newly established IT audit function.

Peer reviews have become a regular practice; the latest assessment of the NAOL is being currently performed by the European Court of Auditors, the State Audit Office of Finland and the Office of the Auditor General of Norway.

6. Breaking boundaries

Public Audit Strategy for 2006-2010 was aimed at enhancing the integration of the NAOL with another organisations involved in auditing activities. While at the beginning, the development of principles for cooperation was foreseen, in the longer run, it evolved into Cooperation Programme for 2011-2015 between the National Audit Office and Municipal Association of Controllers, the Institute of Internal Auditors, the Lithuanian Chamber of Auditors and the Ministry of Finance. This allowed the NAOL to share audit methodology and practice with internal, municipal, and certified auditors.

Another aspect of integration followed the provisions of INTOSAI Standards in Government Auditing to “encourage its personnel to become members of a professional body relevant to their work and to participate in that body's activities”. The result of this integration is that our colleague at the National Audit Office was elected the President of the ISACA Chapter of Lithuania.

Peer review team present their report in 2006

2010 milestones to maturity continued

Since 2008 the National Audit Office of Lithuania has continued its cooperation with universities, colleges, research institutes involved with or interested in public audit. Awareness sessions at universities during which auditors of the NAOL deliver introductory courses about public audit help to extend the understanding of students. Those interested in entering the auditing profession choose the NAOL for their internship; the most promising are later employed by the NAOL.

7. Building competence

INTOSAI Standards in Government Auditing helped in developing policies and procedures “to support the skills and experience available within the SAI and identify those skills which are absent; provide a good distribution of skills to auditing tasks and a sufficient number of persons for the audit”.

The NAOL has an extensive training system in place involving initial training for all new auditors continued later by professional development. In most cases practical training is provided by our own auditors who share practical experience with their junior colleagues.

Each auditor has his or her own individual skills, and those skills (personal or professional) are identified and revealed. Our personnel management practices aim at accumulating such competencies and developing them individually. Using this approach, each audit team may be balanced with by incorporating those with the best professional, methodological, and managerial skills.

The individual competence of auditors is used when they are dealing with specific and content-related tasks during their audits. The IS audit function and later on, the infrastructure audit function were adjusted to the needs of the National Audit Office. Auditors with backgrounds and skills in the information technology and building construction fields are included in every financial/performance audit, where such competencies are needed. This allows us to compose mixed teams of auditors possessing different professional competences and qualifications, and audits can therefore become more tailored and specialized. The NAOL employs auditors with educational backgrounds in chemistry, biotechnology, educational sciences, and medicine; such auditors are very helpful when performing audits in related fields.

In order to ascertain each auditor's personal skills and to address them specifically by providing adequate training, we have introduced a detailed personnel assessment scheme using over a

hundred detailed criteria, which helps to identify the precise competences of an auditor and provides the provision for further improvement. Good practices in personnel management are unlimited – even an insignificant effort to put an audit team in the same office space (and changing it as the audit team changes) helps people to get to know each other better, to discuss issues more openly, and to become more efficient.

8. Trust in what we suggest

Taken together, our modern audit methods, the maturity of our institutional processes, and our open and competent auditors recognised within the NAOL and beyond, culminate in creating a powerful tool which allows us to bring our audit recommendations to the public sector.

When undertaking performance audits, it means that we are coming with the criteria of effectiveness and efficiency, which are a part of good practices or are reflected in international standards. Even if the recommendations of global best practices are more demanding and stringent than the current Lithuanian legal framework, they are worthwhile and realistic, because they have been tested in the environment of the NAOL.

Competence in professional areas and coherent and reliable criteria make audit recommendations better understood and accepted by auditees. We are appreciated more as competent colleagues offering professional advice, rather than narrow-minded clerks.

9. Enforcing legislation

The implementation of recommendations is a way to incorporate good practices into legislation. Initially tested by the NAOL, and then accepted by auditees, we need to allow some time for bring tangible benefits to the public sector to emerge.

Over time, good practices will become the norm for the public sector, and new legislation will be aligned to reflect the best practices. Following this approach we are trying to identify the areas where our recommendations can provide major benefits – such audits are targeted not at single agencies but at specific sectors where our advice is needed.

10. Sharing with others

Last but not least, our mission is to share our experience with others; to test if it is applicable in

21different countries and environments. Since 2011, the National Audit Office of Lithuania has been active as a donor, providing other Supreme Audit Institutions with our audit approach and practical experience gained over the years. Just to mention a few such initiatives:

• Project “Georgian – European Policy and Legal Advice Centre - Phase VII (GEPLAC VII)” - consultations, recommendations and other expert assistance provided to the Chamber of Control of Georgia in the following areas: Opinion on the Draft State Budget; Opinion on sets of financial statements and reports on implementation of the State budget including revenue audit; Opinion on the report on the State-owned property; IT Audit.

• Project “Support to National Budget Transparency in the Republic of Kyrgyzstan”.

• Projects “Transitional Capacity Support for the Public Administration of Moldova” and "Strengthening Local Governance in Moldova" - sharing of expertise during expert visits to the National Audit Office.

• Twinning project “Audit Quality Control in the State Audit Institution of Montenegro” focused on establishing audit quality assurance system.

The National Audit Office of Lithuania currently acts as a partner conducting peer reviews at other

Supreme Audit Institutions. In 2012, with colleagues from the Supreme Audit Institutions of Denmark, Austria, and the Netherlands, we performed a peer review at the Supreme Audit Office of Poland. New contacts, new challenges, different attitude of our colleagues give us a lot of useful information. Through sharing knowledge and experience, we can increase our horizons. Sharing our knowledge means learning together from others.

***

10 steps towards maturity is a process, but not a final result. The final result still waits ahead. Allow me to finish with the words of Mr. President John F. Kennedy: “Things do not happen. Things are made to happen“.

Thank you to everyone who has made and continues to make things happen at the National Audit Office of Lithuania.

Sharing experiences with colleagues from the Chamber of Control of Georgia (2011), the Accounts Chamber of the Kyrgyz Republic (2012), the State Audit Institution of Montenegro (2014) and Moldovan National Integrity Commission (2013).

22Supreme Audit Office of the Czech Republic – 10 Years Together in the EU

By Miloslav Kala, President of the Czech Supreme Audit Office

What happened 10 years ago on 1 May was undoubtedly a turning point for the Czech Republic. Membership of the élite European club, which, a few years earlier, had seemed almost unattainable, has brought profound socio-economic and cultural change. It has transformed the life of literally each of the 10 million Czech citizens: free movement of people, the possibility of studying or working in other Member States, access to the European Union’s (EU) internal market for Czech companies and firms, thousands of projects implemented with the support of European funding, active participation in decision-making at EU level, and so on. According the Czech Prime Minister, Bohuslav Sobotka, accession has increased compliance with rules and the enforceability of law, and contributed to the country’s overall development.

It was inevitable that this profound change would be reflected in the work of the Supreme Audit Office. The Office’s mandate includes auditing funds from foreign sources provided to the Czech Republic. Based on the above powers conferred on it, the Office audits both the Czech Republic’s obligations vis-à-vis the revenue side of the EU budget, and the EU funds made available to the Czech Republic under the various policies. In order to carry out its mandate, an independent eight‑strong unit was formed initially in March 2005 and then developed into an independent department with a staff of 32 top-level auditors in

Looking back on 10 years of a common journey through the European Union

December 2006. Another 20 auditors at the nine regional offices have received specific training in the audit of EU funds. Some of our staff have also spent some time working at the European Court of Auditors as national experts. We are proud that, since the Czech Republic’s accession to the EU, the Czech Member of the Court has been Mr Jan Kinšt, a former Member of the Supreme Audit Office, who is currently serving his second term.

The pre-accession period and, in particular, the Czech Republic’s accession to the EU presented the Office with a new, and vast, audit area. Indeed, revenue from the EU budget between 2004 and 2013 amounted to more than 16 billion euro. This challenge has had a significant impact on the preparation of audit plans. From 2004 until the end of September 2014 the Office’s Board adopted 85 audits relating to the EU budget and its links to the Czech Republic, which accounts for more than one-fifth of all the audits adopted.

Overview of EU budget-related audits completed by the Office between 1 January 2004 and 20 September 2014

85

310

EU budget-relatedaudits

Other audits

The Office’s audits relating to EU funds cover not only the implementation bodies, which manage EU budget funds, but also the final beneficiaries. The importance we attach to audits of European funds is evidenced by the fact that their share is growing every year, reaching a record 15 audits last year.

Miloslav Kala, President of the Czech Supreme Audit Office

23Supreme Audit Office of the Czech Republic – 10 Years Together in the EU continued

Overview of EU budget-related audits included in the Office’s audit plans between 2004 and 2013

4239 39

28

38

3032

3836

40

3 3

9

5 6

10 97

11

15

0

5

10

15

20

25

30

35

40

45

2004 2005 2006 2007 2008 2009 2010 2011 2012 2013

Total audits

EU budget-relatedaudits

This increased interest on the part of the Office in auditing European funds is not accidental. It is grounded in rigorous risk analysis, which precedes the drafting of the audit plan and is based on an analysis of open sources, data from government information systems, data from international databases and other sources. As the Czech Republic has persistent problems in absorbing European funds, it was natural for the Office to focus on this area. Indeed, since March 2012 no payment claims have been submitted to the Commission for any operational programmes co-financed by the European Regional Development Fund or the Cohesion Fund. This was in response to the Commission’s decision not to reimburse any payment claims for these operational programmes because of weaknesses in the functioning of the Czech management and control systems.

The Commission called on the Czech authorities to adopt the remedial measures defined in an Action Plan by the end of June 2012. The Czech government has faced, is facing and, regrettably, will still have to face problems with regard to absorption of European funding, but it considers the Office’s audit findings to be a valuable source of information on the weaknesses in the system for implementing European subsidies, as well as possible remedies. For eight years now, the results of our audit work on European funds have been summarised and placed in a European context in our EU Report, which is appreciated by both experts and politicians.

Accession to the EU and the ensuing requirements imposed on the Czech authorities have afforded the Office clear benefits, including, among other things, involvement in the Contact Committee activities, participation in the Contact Committee working groups, the organisation of seminars for EU Supreme Audit Institutions (SAIs), participation in the activities of the European Organisation for the Safety of Air Navigation (Eurocontrol) and the European Defence Agency, the appointment of Office representatives to the audit commission of the European Space Agency, joint coordinated audits with the audit institutions of other EU Member States, as well as participation in the pilot project for a joint audit with the ECA. All of this not only results in lessons being learnt with regard to the practical application of audit standards and European audit directives, the adoption of principles and the development of our own methodology for auditing management and control systems and classifying and quantifying audit findings, or the development of a methodology for the audit of EU co-financed investments, but also in, for example, improvement of the auditors’ language skills and the enhancement of their proactive approach.

Looking back over 10 years we can say that we are no longer newcomers to the field of European audit, trying to find our feet and keep up with our colleagues from the countries of the former EU-15. Over many years of intensive international cooperation we have been able to learn how both

24

the audit institutions of other European countries and the ECA carry out their audit work. While some of the observations and lessons were an inspiration, and others a warning to us, we became convinced that we are at least as good as our partners in many areas.

A significant challenge as regards our future work is, for example, the European Parliament resolution of February 2014 aimed at greater integration of the work of SAIs and the ECA, and the involvement of SAIs in the discharge procedure under shared management. We are involved in intense discussions with our partners on this matter, as, for example, was recently the case at the meeting of the SAIs of the V4+2 countries (the Czech Republic, Hungary, Poland, Slovakia, Slovenia and Austria) held in September 2014 in Austria. Discussions concerning increased cooperation between national SAIs and the ECA are expected to continue at the Contact Committee meeting due to be held in October in Luxembourg.

We would also like to continue to develop our quality team of experts in the audit of EU funds which, by its very nature, is not an easy domain. We want to produce high-quality output from our audits, thus contributing to both sound management of the EU budget and effective and efficient use of EU funds. An important role will of course be played by continuing international cooperation across the EU, which helps to maintain the high quality of our work.

When the Czech government applied to join the EU on 17 January 1996, it wrote in its memorandum that the EU is a creation that “has guaranteed the citizens of its Member States peace, political stability, positive international relations, unparalleled freedom and economic prosperity over many decades”. It was therefore natural to aspire to become part of this community. The road to achieving this was winding, and sometimes thorny, but eventually led to success. The Accession Treaty was signed in April 2003 in Athens, and in the referendum of June 77% of voters voted in favour of joining. On 1 May 2004 the country became a member of the EU; it was full of enthusiasm and expectation, but also concern. Although the matter of evaluating recent history is always a tricky business, on behalf of the Supreme Audit Office I shall risk doing so and state that, despite some expectations that have not been met and concerns that have proved to be founded, the gains have outweighed the losses and EU membership has greatly enriched us. We are privileged to be part of an integrated European union.

Supreme Audit Office of the Czech Republic – 10 Years Together in the EU continued

25

By Rosmarie Carotti

Special Report N° 13/2014EU support for rehabilitation following the earthquake in Haïti

This report was presented on 23 September 2014 to the press by Hans Gustav Wessberg, ECA Member

Piotr Zych, team leader

R. C.: The earthquake happened in 2010. What was the response of the EU and why is this the right time to publish the audit?

Piotr Zych: The earthquake of magnitude 7.0 which hit Port-au-Prince and its surroundings on 12th January 2010 killed about 230 000 people and left 1.3 million homeless. As it happened in a densely urbanised area, the earthquake destroyed over 100 000 houses, most of the capital’s hospitals, public administration buildings, schools, but also water pipelines and roads. Soon after the disaster a cholera epidemic broke out and spread rapidly due to poor sanitary conditions. The most urgent humanitarian needs included the provision of water, food, medical supplies, ambulant treatment and shelters.

The international response was immense. Several hundred organisations, including NGOs, international organisations and state agencies sent their help. The UN launched a so called “flash appeal” and gathered almost 600 million USD in just 72 hours. The US army also established a strong presence in Port-au-Prince.

The EU was delivering relief support through the European Commission's Humanitarian Aid and Civil

Protection department (ECHO). ECHO was already active in the country before the earthquake, as Haiti was in a protracted humanitarian crisis due to its fragile situation, recurrent tropical storms, and environmental degradation. Projects financed by ECHO focused on the delivery of water and food, construction of temporary shelters and sanitation facilities.

Following the first phase of emergency assistance, which focused on saving lives and livelihoods, both ECHO as well as EuropeAid – Directorate-General for Development and Cooperation - engaged in activities aimed at the rehabilitation of the country. To this end, the Commission reviewed its development cooperation strategy with the country, which resulted in a change in the allocation of resources and additional financial means, mostly for urban reconstruction and general budget support. Furthermore, disaster risk reduction became a crucial element of the efforts to increase country resilience – the ability of communities and state institutions to cope with future disasters.

We carried out the audit work 3.5 years after the disaster – just enough time to see reconstruction results. But the rehabilitation of the country is far from finished. I think the timing of the audit was well-chosen, enabling us to see the outputs and delayed projects, and to assess the main factors limiting the effectiveness of support.

R. C.: The report is indeed about rehabilitation. Does that mean that you did not audit humanitarian aid given as a first response to Haiti? And what is rehabilitation?

Piotr Zych: Rehabilitation operations are processes which aim at stabilising the economic and social situation by helping the country to rebuild infrastructure (including houses), improve provision of social services and reinforce institutions. Successful rehabilitation should permit a decent transition towards development cooperation and restoration of conditions for sustainable

Interview with Piotr Zych, team leader

26Special Report N° 13/2014 EU support for rehabilitation following the earthquake in Haïti continued

development in the long run. All those phases – relief, rehabilitation and development - are interconnected in a sense that every phase should build upon the achievements of the preceding phase and enable transition to the next one. In our audit we focused on rehabilitation, but also assessed the link between short-term and long-term assistance.

Let me give you two examples: humanitarian assistance should fulfil immediate needs for food, among others. Shipment of food from donor countries is rapid and beneficial but also has side effects – it destroys local markets and harms local producers. Cash-for-work activities on the other hand enable the restoration of local markets and drive agricultural production. The next step would be the development of agricultural production capacity. In the long run this would result in increased food security of the country.

Programmes designed to reconstruct damaged neighbourhoods should not only result in the restoration of pre-disaster conditions, but in enhancing employment or transportation possibilities, thus laying foundations for the lasting development of these neighbourhoods.

R. C.: To whom was the EU money given for that, to the government? Did you evaluate corruption in this context?

Piotr Zych: In the three years after the earthquake the EU committed over €400 million from the European Development Funds, thematic budget lines, ECHO and Instrument for Stability. The implementation of individual programmes is entrusted to aid partners – usually NGOs or international organisations.

In case of budget support the amounts are disbursed in tranches directly to the State’s budget. The two audited budget support programmes, totalling €47 million, aimed to support government’s action plan for post-disaster reconstruction and its growth and poverty reduction strategy.

Corruption was assessed as a risk for sound financial management in the preliminary study and at the planning stage of the audit. It turned out to be one of the main reasons for most donors to withdraw from the agreed budget support programme. This had an impact on the implementation of

safeguard measures improving financial controls at the treasury level, which led to one of the Court’s findings.

R. C.: Was the choice of the NGOs good?

Piotr Zych: The picture is mixed. We audited projects, where NGOs were selected on the basis of their prior experience in a given neighbourhood. Knowledge of local circumstances and interdependences, and trust of the local population seem crucial to successfully implementing a project. On the other hand, some of the implementing partners lacked in-country experience, linguistic skills, and technical capacity or just underestimated the challenges of working in a post-disaster environment in a fragile country.

R. C.: In the special report you say that the design of the aid by the Commission was good but the implementation not. Why?

Piotr Zych: Immediately after the earthquake Commission experts assessed multi-sector needs. This was the basis for EU response programmes, agreed with the three main EU Member States most active in the country – France, Germany and Spain. EU support for rehabilitation was channelled to priority areas – housing and urban rehabilitation, water, sanitation and hygiene, health, food security and education. At the same time however, wider development needs were agreed on with the Haitian government and also followed. The main project in this area was the construction of a road connecting Port-au-Prince with the central region of Artibonite and the North of Haiti – an important investment for the development of agriculture in the country.

Problems with the implementation led to delays of the majority of, and limited results of three out of, thirteen audited programmes, including the financially most important macroeconomic stability support programme. We identified several reasons: insufficient management and mitigation of identified risks, lack of experience and awareness of local constraints such as cumbersome administrative procedures and insufficient technical expertise in the supported areas. The Commission was aware of most of the risks, but did not take proper measures to address them.

27

Complex coordination mechanisms and the collapsed institutional capacity of the Haitian administration were also hindering factors. Lack of land registry in the country is a prominent example.

Lastly, monitoring of the implemented actions was not fully effective. The Commission and the European External Action Service did not send sufficient staff with relevant skills and experience in the critical phase following the earthquake.

R. C.: Was there also a part of budget support in the rehabilitation aid?

Piotr Zych: The earthquake hit the part of the country with the highest concentration of economic activity. It led therefore to an extraordinary fall in public revenues. Major donors agreed on the budget support to the Haitian government over two years to finance critical expenses such as the salaries of civil servants and police and the operation of schools and hospitals. It was also aimed to support the implementation of the government’s action plan for post-disaster reconstruction. The EU budget support programme was already planned under the 10th EDF cooperation strategy for the period 2008-2013, but was increased by €29 million following the earthquake.

The donors agreed a set of control measures to be developed to safeguard the assets and a priority action plan for reforms of public finance management. However, this complementary assistance failed to achieve the progress intended. The main challenges were insufficient political will from the government and weak support from the parliament. However, we also found out that the monitoring of progress of the reform was not consistently carried out and that the EU delegation lacked specific competence in the area of economic governance. As a result, some international donors decided to withdraw. The Commission disbursed the first payments, but also had to withhold the support. Prospects to end the deadlock are currently uncertain.

R. C.: What was the role of the delegations of the Commission?

Piotr Zych: The EU delegation is responsible, among others, for country strategy development, political dialogue with the government, contract assignment and monitoring of projects

implemented by implementing partners – usually NGOs or international organisations. However, during the earthquake the EU delegation in Port-au -Prince was likewise severely affected. One person died, the Head of Operations needed hospitalisation outside the country. The building in which the EU had its offices was unsafe – files and equipment were damaged or got lost. Nearly all staff was evacuated – to Brussels or to the Dominican Republic.

The main challenge for the EU Delegation was therefore to restore a proper functioning of the office as quickly as possible in order to assess the damages and support needs, and to start rehabilitation programmes. It was pretty obvious from the beginning that it couldn’t be done remotely – from the headquarters or Santo Domingo. Some officials returned, but for the next three years the Delegation remained heavily understaffed. DG DEVCO officials, beside their usual work, were assigned with tasks of other services (like the Instrument for Stability). Many important functions were not occupied or occupied by persons without an adequate background. In addition, there was high fluctuation in the post of the Head of Delegation, with long periods in between without an appointment. This was an important factor influencing the quality of political dialogue (e.g. on the public finance reform) but also of the implementation of programmes. In that respect, in the report, we pointed to the lack of timely measures taken by the headquarters.

R. C.: What is the value of this report for the future?

Piotr Zych: The main focus of the audit report is put on the link between the short-term humanitarian assistance and long-term rehabilitation and development efforts. The effectiveness of aid in cases of future disasters shall be increased by taking into consideration long-term objectives at the early phases of support, by increased coherence between different instruments available, and by improved modes of cooperation between EU actors – mainly DG DEVCO and DG ECHO. The report also prompts the Commission to establish a common strategy between both DGs and to set their respective responsibilities and handover procedures.

The audit report urges the Commission to better design the interventions and coordinate the efforts and calls for the implementation of measures for

28

From left to right: Peter Eklund, private office attaché of Wessberg, Hans Gustav Wessberg, ECA Member, Piotr Zych, team leader, Damijan Fišer, press officer

emergency staff redeployment. Its impact therefore goes beyond the case of Haiti.

The improvements described in the audit report are supposed to improve the quality and pace of aid programmes and therefore have a direct impact on living conditions of people hit by future disasters.

R. C.: What was the main problem for you in auditing the EU Commission?

Piotr Zych: I think the main difficulty in auditing the Commission was to assess, to which extent audited programmes’ failures were due to challenging circumstances and to where the Commission could do better. Our interlocutors consistently underlined the difficulties they face in Haiti. It was a fragile state already before the earthquake, with barely functioning administration, huge social problems and poverty. The fact that it was the first urban disaster on such scale required even from experienced humanitarian and development actors a lot of imagination to solve problems they had never encountered before. Another difficulty was linked to the number and diversity of aid organisations, some of them being hostile towards each other. The coordination of the assistance under such circumstances is no easy challenge.

I believe nevertheless, that we succeeded in producing a balanced audit report, in which the Commission’s services are criticised for what is in their hands and given credit for its achievements. Mr Wessberg, the reporting member, in the press conference launching the report said that despite the criticism “a helluva lot of good” has been done. I can only agree.

R. C.: How did the Commission react to our report?

Piotr Zych: The Commission underlined the difficult context but accepted all of the Court’s recommendations. It stressed that it implemented some programmes despite the inevitable risks in order to contribute to the wellbeing of the population.

The Commission confirmed that the link between the short-term assistance and long-term development aid will be assured in the newly developed resilience agenda, which follows the objective to better prepare countries for future disasters. As concerns budget support and reforms of the public finance the Commission pointed at the newly developed instrument of intervention

known as a ‘state building contract’ which should be better adapted to fragility and crisis or post-crisis situations. Finally, the European External Action Service established in the meantime provisions for emergency personnel redeployment. The EU delegation in Haiti has been reinforced with 11 new posts.

R. C.: Are there still EU funds given to Haiti by the Commission in 2014? How long is the aid scheduled to last?

Piotr Zych: The rehabilitation of the country is thus far not finished. By the end of 2013 over 200 000 people were still living in tented camps. None of the administration buildings have been fully reconstructed yet. Development of the land registry – crucial for the development of the country – will take years or even decades. Therefore the EU will continue its support to Haiti and has foreseen €420 million for the period 2014 – 2020.

Special Report N° 13/2014 EU support for rehabilitation following the earthquake in Haïti continued

29By Katharina Bryan, team-leader

Special Report N°15/2014 Between external borders and internal solidarity: The special report on the External Borders Fund1

This special report, published on 8 October 2014, was produced by Chamber IV. Louis Galea is the Member responsible for the report, Paul Stafford is the Head of the CD4 PRF unit, and Katharina Bryan was the team leader.

Between external borders and internal solidarity: The Special report on the External Borders Fund1

Whether we are on business or private travel, most of us nowadays take for granted that we are able to travel without time-consuming checks when crossing borders between the 26 Schengen countries.2 At the same time, this ease of travel resulting from the end of internal border controls on persons, which started nearly 30 years ago in Schengen, means that the security of the external borders of any one state can affect us wherever we are in the Schengen area.

How does the EU support external border management?

Schengen States are responsible for controlling their borders according to commonly agreed rules (the Schengen acquis) and most related costs are financed nationally. The EU supports current and prospective Schengen States to ensure uniform, effective and efficient controls at the external

1 Special Report No 15/2014“The External Borders Fund has fostered financial solidarity but requires better measurement of results and needs to provide further EU added value”. 2 The Schengen area currently consists of 22 EU Member States (Belgium, Czech Republic, Denmark, Germany, Estonia, Greece, Spain, France, Italy, Latvia, Lithuania, Luxembourg, Hungary, Malta, Netherlands, Austria, Poland, Portugal, Slovakia, Slovenia, Finland and Sweden) and four Associated States (Iceland, Liechtenstein, Norway and Switzerland).

borders through the External Borders Fund (EBF). The EBF aims to establish financial solidarity between Member States3 by supporting those for which the control of the EU’s external borders represents a heavy burden. In total, € 1.9 billion were available from the EBF for the 2007–2013 period. The EBF was established as part of the “General programme on Solidarity and Management of Migration Flows for the period 2007-2013” run by the Commission’s Home Affairs DG. Two funds of the programme, namely the European Fund for the Integration of Third-Country nationals and the European Refugee fund, had already been the subject of an ECA performance audit4. For the financial period 2014-2020, the EBF has been integrated into the Internal Security Fund instrument (ISF-Borders). By auditing these three SOLID funds in the run up to 2014, the Court was able to provide input into the new legislative framework and the management of the new funds.

What was the focus of the audit?

The audit focused on whether the EBF has contributed effectively to external border management. Since most of the Fund is run under shared management with the Member States, auditing the latter’s management of the EBF was fundamental to answering the audit questions. Greece, Spain, Italy, Malta and Poland were chosen for on-the-spot visits, representing 55% of the total EBF allocation. In addition, the audit included the parts managed directly by the Commission such as emergency actions5.

3 Based on established practice in this area, the term “Member States” in this article refers to countries participating in the EBF, regardless of whether they are EU Member States or Associated States.4 SR 22/2012 “Do the European Integration Fund and European Refugee Fund contribute effectively to the integration of third-country nationals?”5 Community actions, which include Emergency actions, and so-called Specific actions designed to address specific weaknesses at external borders

From left to right: Paul Stafford, head of unit; Jurgen Manjé, auditor; Louis Galea, reporting ECA Member; Jacques Sciberras, head of private office of Galea; Katharina Bryan, team leader; Wayne Codd, auditor; absent : Tim Upton, auditor

30What challenges did the audit face?

One of the first questions “the woman on the bus” would ask would probably be whether the EBF has made the borders safer. However, this question is extremely difficult to answer due to the loose (or non-existent) cause and effect relationship one encounters for border measures. For example, is the fact that fewer irregular migrants are encountered due to the EBF-funded patrol boats or due to the changed political situation in a neighbouring country. Direct measurement of results was not considered feasible within the audit. Hence, reliance was to be placed on Member States’ and Commission’s evaluations – which were found to have serious deficiencies.

The audit also provoked interesting discussions on the concept of EU added value and how to operationalise it in the context of the EBF. For example financial solidarity can be seen to constitute added value per se but should EU involvement trigger more than a mere reimbursement of costs.

What were the results of the audit?

The audit found that the EBF has contributed to the external border management of the EU and that it has fostered financial solidarity between Member States. However, further EU added value was limited and the overall result could not be measured due to weaknesses in the responsible authorities' monitoring and serious deficiencies in the ex post evaluations by the Commission and the Member States.

The auditors found serious weaknesses in management of the fund in key Member States (Greece, Spain, Italy and, for the early funding years, Malta). These weaknesses lead to the risk that border management is not adequately strengthened where it is most needed. Low implementation in some countries limited the

Between external borders and internal solidarity: The Special report on the External Borders Fund continued

Did Frontex play a role in the audit?

The European Agency for Management of Operational Cooperation at the External Borders (Frontex) coordinates Member States’ operations at border areas under significant migratory pressure, performs risk analysis and supports border guard training. While it is not financially supported by the EBF, Frontex is relevant to the Fund’s effectiveness by providing risk analysis for the annual calculation of the Fund’s allocation to the Member States and identifies specific weaknesses at border points which should be addressed by the so-called EBF “specific actions”. Moreover, EBF-funded equipment can be used by Member States to participate in Frontex missions. Therefore the auditors visited the agency, even though Frontex was not an auditee as such.6

Why was there co-operation with the EU agency for fundamental rights (FRA)?

The EBF’s objectives are to be achieved with the principle of respectful treatment and dignity. The audit team successfully cooperated with FRA and was able to benefit from work undertaken in the agency.7 One of the more striking findings of the report was the detection of the EBF co-funding of a temporary detention centre in Greece which did not comply with fundamental rights.

6 Chamber IV carries out the financial audit of Frontex as part of its special annual reports on EU agencies. 7 See, for example, the report “Protecting fundamental rights at the EU sea borders” (Fundamental Rights Agency, 2013)

Fixed wing maritime patrol aircraft co-financed by the EBF to enhance the border control capabilities of the Armed Forces of Malta (© Armed Forces of Malta)

Three EBF co-financed class 300 all-weather vessels of the Italian Coast Guard operating from Lampedusa, Italy

Temporary detention centre in Greece

31

Comment by Louis Galea, the ECA Member responsible for the report “The EBF has helped Member States in their task of managing the EU's external borders, but the Commission and Member States have to improve the Fund`s operation so that the EU taxpayers' money can be used more effectively in assisting the management of our external borders whilst continuing to support financial solidarity.”

fund’s effectiveness. Furthermore the fund’s links with Frontex operations need to be improved.

What are the recommendations from this audit?

Our recommendations concern both the Commission and the Member States. We underlined the importance of the availability and timeliness of information on overall results of the Fund. While some of these recommendations have been taken account of in the new legislation, it will remain to be seen whether in the practical management of the Fund monitoring and evaluation will indeed be improved. We also recommend concrete steps to increase the EU added value of the Fund such as by strengthening the its link with Frontex or by funding common application centres and other forms of consular cooperation rather than the renovation, adaptation or equipping of consulates.

For a video on the report see: http://youtu.be/HlwXmTbg4Jc.

An EBF co-financed cabin on the Spanish-Moroccan border in El Tarajal, Ceuta

32FocusEFOCUS

A

En septembre dernier, le cabinet de M. Tomé Muguruza, Membre de la Cour, a accueilli des auditeurs de la Cour des comptes d’Espagne et des organes de contrôle externe espagnols pour son séminaire annuel consacré à l'importance des fonds européens et à leur contrôle, fondé sur un échange d’informations concernant les méthodes de travail de notre institution.

Le séminaire a pour objectif de faire connaître le travail de la Cour des comptes et des institutions européennes. La participation de nos collègues

XIVe séminaire sur la Cour des comptes européenne et le contrôle des fonds de l’Union organisé à l’intention des auditeurs des organes de contrôle externe espagnols, 25 et 26 septembre 2014Par le Cabinet de M. Tomé Muguruza

auditeurs ainsi que la visite de la Cour de justice et de la BEI contribuent à donner une vue d’ensemble du travail de l’Union.

Le jeudi 25, MM. Tomé Muguruza et Ruiz García, Secrétaire général, ont ouvert le séminaire par quelques mots de bienvenue. MM. Costa de Magalhães et García de Parada (respectivement Chef et Attaché de cabinet de M. Tomé Muguruza) ont ensuite débuté la journée par une présentation générale de notre institution.

Mmes Aurelia Petliza (Auditeur) et Sabine Hiernaux-Fritsch (Chef d’unité) ont successivement présenté le contrôle des fonds pour l’agriculture et les audits sur l’aide extérieure accordée par l’Union.

L’après-midi s’est poursuivi par le traditionnel cas pratique, dirigé par MM. Costa de Magalhães, Gonzalez Bastero (Chef d’unité) et Garrido Lestache (Auditeur).

Vendredi 26, la matinée a été consacrée à la visite de la Cour de justice et de la BEI. M. Tomé Muguruza a clôturé la séance en remerciant les participants pour leur fidèle participation à ce séminaire.

In November 2014 the Court says:Hello to:

DANIELESCU DanFERRARIS AndreaKERN He lmutKLINDZANS MarisMANZANAL RUIZ Rodrigo VicenteMEIJERS DerekPYPER MichaelVAN BREE Karlijn

Goodbye to:

DEBLONDE VALLET MarieELENKOVA DanielaWITTEMANN MarkusDELVAUX Michael

Board of the AIACE

We have the pleasure to announce that in September Dr Hendrik Fehr, former ECA director and Ms Renata Fackler, former head of the German translation service in the ECA were both elected into the Board of the AIACE, the organisation of former EU officials. Dr Hendrik Fehr was elected President and Ms Renata Fackler took over the responsibility of the Newsletter.

33

The aim of the External Borders Fund (EBF) is to help Member States ensure uniform, effective and efficient controls at their common external borders. The Court’s audit examined the EBF’s effectiveness and the achievement of its objectives. The Court found that the EBF has fostered financial solidarity by concentrating assistance on Member States who bear a heavier financial burden. However, further EU added value was limited, and the overall result could not be measured due to weaknesses in monitoring and ex post evaluations. Furthermore, the audit found serious weaknesses in the management of the fund in key Member States, which might mean that border management is not adequately strengthened where it is most needed (see page 29).

This special report was published on 8 October 2014 and is available on our website: www.eca.europa.eu

For the European Union’s climate policy to be credible, the EU institutions and bodies need to be at the cutting edge in designing and implementing policies to reduce their own greenhouse gas emissions. This special report examines how the EU institutions and bodies are tackling the challenge to contribute to the Union’s 2020 goal of at least a 20 % reduction in its emissions compared to 1990 by mitigating the impact of their administrative operations on the environment. This special report was published on 15 October 2014 and is available on our website: www.eca.europa.eu

Special Report N°15/2014

Special Report N° 14/2014

The Commission and the Member States have set up eight regional investment facilities tosupport EU external policies. These investment facilities aim at pooling together (blending) grants provided by the European Commission with loans from financial institutions. They contribute to finance key infrastructure projects that require considerable financial resources. The Court examined the effectiveness ofblending EU grants with loans from financial institutions.

The Court concludes that this blending has been generally effective. The regional investment facilities were well set up but the potential benefits of blending were not fully realised. The Court makes a number of recommendations for the Commission that concern project selection and grant approval, disbursement of funds, monitoring of the implementation of EU grants, and enhancing the visibility of EU aid.

This special report was published on 22 October 2014 and is available on our website: www.eca.europa.eu

Special Report N°16/2014

FocusEFOCUS

A

The External Borders Fund has fostered financial solidarity but requires better measurement of results and needs to provide further EU added value

How do the EU institutions and bodies calculate, reduce and offset their greenhouse gas emissions?

The effectiveness of blending regional investment facility grants with financial institution loans to support EU external policies

34

Reception at the ECA for the national karate team of Cyprus

ECA Social ESOCIAL

A

Lazaros S. Lazarou, ECA Member, Andreas Vasiliou, President of the Cyprus Karate Federation, Eduardo Ruiz Garcia, ECA Secretary-General

The first Karate championship of the Small States of Europe, held in Luxembourg from 19 to 21 September 2014, was a success for the national karate team of Cyprus, achieving the second place in the overall ranking, with Luxembourg coming first. Mr Lazaros S. Lazarou, ECA Member, hosted a reception in honour of the Cyprus delegation on 21 September 2014 at the ECA’s premises in Luxembourg.

Mr Lazarou said “The ECA, in addition to its contribution to European citizens through its audit work, is pleased to have the opportunity to contribute through other fields such as supporting sports. Sports build character and provide tools and experience which are useful in the track of life.

I personally became witness and I took lessons on this character building from the brave attitude with which Christos and Simonas faced their injury at the championship, and from the selflessness of their colleague Anna and Niki, mother of another athlete and a nurse by profession, who both chose to be with the injured athletes in hospital rather than staying at the championship games. Anna missed her award

ceremony and Niki missed the participation of her daughter in the finals and subsequently her award ceremony.

The young generation is the future of a country and the future of Europe. A big bravo to Andreas Vasiliou and his associates in the Cyprus Karate Federation and the Olympic Committee for what they have achieved together with the young athletes and the support of their parents.“

Mr Lazarou concluded by thanking the ECA and its services for making the reception possible.

35

R.C. : Monsieur Stavrakis, la certification du service d’audit interne de la Cour vient d’être renouvelée. Elle avait été octroyée pour la première fois en 2009 pour une durée de cinq ans.

Meletios Stavrakis : En effet, le standard 1312 des « standards pour la pratique professionnelle de l’audit interne » établit que : afin d’obtenir et/ou maintenir la certification, le service d’audit interne doit être en conformité avec les normes internationales. Une telle évaluation doit être effectuée tous les cinq ans (une première évaluation avait déjà été réalisée en 2009).

Depuis ma nomination en tant qu’auditeur interne en 2010, mon engagement a donc été d’assurer le maintien de cette certification mais également d’améliorer notre niveau de performance en accord avec les recommandations émises par les évaluateurs en 2009. Ces deux objectifs ont été atteints et la certification de l’audit interne a été renouvelée pour une période de cinq ans.

En tenant compte de l’évolution du rôle de l’audit interne au sein des organismes privés et publics, le défi pour notre service est de rester à jour et de pouvoir s’adapter aux nouvelles exigences.

Par Rosmarie Carotti

La certification du service d’audit interne de la Cour des comptes européenne

Entretien avec Meletios Stavrakis, auditeur interne de la Cour à l’occasion de la nouvelle certification du service de l’audit interne de la Cour des comptes européenne Le 1er octobre 2014

R. C. : Qui fait la révision des standards utilisés pour les évaluations des services d’audit interne?

Meletios Stavrakis : Au sein de l’Institut des auditeurs internes (IIA) il y a des groupes de travail spécifiques qui examinent les propositions de modifications des standards et des guidelines. Ces propositions sont ensuite discutées au niveau du comité exécutif puis elles sont adoptées.

Plus de 40 contrôles clés se référant aux standards « attribute » et « performance » sont régulièrement évalués et révisés si cela est jugé nécessaire par les groupes de travail de l’IIA. Les évaluations de qualité des services d’audit interne portent essentiellement sur le respect de ces standards et contrôles clés mis en place.

R. C. : Pourriez-vous nous expliquer pourquoi la Cour des comptes européenne qui fait autorité en matière d’audit externe a besoin de la certification d’une firme d’audit privée en ce qui concerne la qualité d’un de ses services ?

Meletios Stavrakis : Le service d’audit interne a été créé à la Cour en 2003 suite à la révision du règlement financier de 2002 qui établissait que chaque institution devait se doter d’un service d’audit interne.

Le rôle de l’auditeur interne est principalement d’assister l’institution dans l’accomplissement de ses objectifs. Il émet principalement des rapports d’audit accompagnés de recommandations qui visent à l’amélioration des procédures internes et à la mise en place d’une gestion à risques.

Afin qu’une certification de l’audit interne soit indépendante, elle doit être conduite par des sociétés externes qui sont des professionnels de l’audit et qui sont habilités à réaliser ce type de révision. Dans le cadre de notre certification, le service d’audit interne a effectué un appel d’offre et c’est la société Deloitte qui a été choisie sur base du rapport qualité/prix de sa proposition.

Iliana Ivanova, ECA Member, Vítor Caldeira, ECA President, Meletios Stavrakis, head of unit, Laurent Berliner, Partner in Deloitte Luxembourg, Augustyn Kubik, ECA Member

36La certification du service d’audit interne de la Cour des comptes européenne continued

R. C. : Dans quelle mesure le fait de payer la société Deloitte pourrait avoir un impact sur la qualité de la certification?

Meletios Stavrakis : Ceci n’a aucun impact. Comme indiqué précédemment pour qu’une société puisse conduire une révision et accorder une certification, elle doit être habilitée à le faire. Cette habilitation n’est accordée que suite à une série de vérifications faite par l’institut des auditeurs internes (IIA) sur le respect de la méthodologie et des critères suivis par ces sociétés pour effectuer des révisions et émettre des certifications.

Il est important de noter également que certains services d’audit interne se sont vus refusés la certification ou bien que celle-ci a été conditionnée à la mise en œuvre d’une série d’améliorations. Dans ce contexte il est intéressant de rappeler que l’IIA dont le siège est au États-Unis est une institution mondiale qui compte de nombreux pays membres et un très grand nombre d’adhérents. À ce titre, tous les auditeurs du service d’audit interne de la Cour ainsi que moi-même, sommes affiliés à l’IIA Luxembourg.

R. C. : Quel est le coût d’une certification ? Et quelle est son utilité pour l’image de la Cour des comptes européenne ?

Meletios Stavrakis : Le coût peut varier en fonction de la nature de l’organisme faisant l’objet de la révision, du nombre d’employés de la société révisé et également du type de révision souhaitée. La Cour a demandé une révision complète. Il est évident que le coût d’une révision similaire au Parlement européen ou à la Commission serait très différent.

La Cour est une institution reconnue au niveau international et qui adhère à une série de normes internationales d’audit. Le service d’audit interne doit se situer au même niveau de qualité. La certification est en quelque sorte une garantie de la qualité des services offerts par la fonction d’audit interne à la Cour. Il s’agit d’une assurance qui s’ajoute à la reconnaissance de nos interlocuteurs et audités à la Cour.

R. C. : Il y a récemment eu une révision de règlement financier de l’UE. A-t-elle touché au rôle de l’auditeur interne ?

Meletios Stavrakis : Le règlement financier révisé, comme le précédent règlement, ont maintenu le

rôle et les compétences de l’auditeur interne au sein des institutions de l’union européenne. Son action ne se limite pas uniquement à un droit de regard à posteriori des effets de la gestion de l’institution mais elle vise également à contribuer à l’amélioration de l’efficience des travaux de la Cour.

R. C. : Comment vos collègues voient-ils votre rôle ?

Meletios Stavrakis : Tout d’abord le rôle de l’auditeur interne n’est pas d’intervenir dans la gestion mais d’informer les gestionnaires sur les risques qui pourraient avoir un impact sur la réalisation des objectifs fixés par le Traité et dans la stratégie de la Cour. Dans ce contexte, je pense que nos collègues, ainsi que le management de la Cour ont toujours eu une appréciation positive de mes travaux en tant qu’auditeur interne ainsi que du rôle de l’IAS dans le contexte de la gouvernance de la Cour.

R. C. : À qui vous, et votre comité d’audit, vous adressez-vous ?

Meletios Stavrakis : Comme ceci est établi dans la « Charte pour la fonction d’audit interne » ainsi que dans les « Règles et procédures de fonctionnement du comité d’audit interne », l’auditeur interne reporte directement au comité d’audit interne.

Après discussions entre l’auditeur interne et le comité d’audit interne lors des réunions périodiques, l’auditeur interne communique ses rapports au Président, à l’ordonnateur délégué ainsi qu’à ceux qui sont chargé de la mise en œuvre des recommandations.

37

À l’occasion de la Journée internationale de la traduction, qui est célébrée dans le monde entier le 30 septembre, la Direction de la traduction de la Cour des comptes européenne a organisé un événement consacré à cette journée. Nous avons ainsi eu l’honneur d’avoir comme invité M. Claude Hagège, professeur honoraire au Collège de France, célèbre linguiste et écrivain français, auteur de nombreux volumes parmi lesquels on peut citer L’Homme de paroles, Dictionnaire amoureux des langues ou Contre la pensée unique.

L’événement a été un véritable succès, réunissant près de 200 participants. Il a été ouvert par M. Vítor Caldeira, président de la Cour des comptes européenne, qui a ensuite donné la parole au professeur Hagège. L’intervention de M. Hagège a été suivie d’une courte allocution de Mme Gailė Dagilienė, directrice de la Direction de la traduction, l’événement étant clôturé par un quiz linguistique au cours duquel les participants ont pu tester leurs connaissances en matière de langues et de traduction.

Dans son discours d’ouverture, M. Caldeira a souligné l’importance de la traduction en tant que moyen de communication entre les peuples de l’Europe. Grâce à la traduction, l’Union européenne est plus proche de ses citoyens et se fait comprendre dans son message politique et démocratique. Quant à la Cour des comptes européenne, bien qu’elle ne soit pas un organe législatif ou judiciaire, son rôle dans le paysage institutionnel européen est de la plus haute importance. Appelée à fournir une assurance concernant la manière dont l’argent des contribuables est dépensé et à offrir des orientations

Par Veronica Ardelean, chef de l’unité roumaine de traduction

Journée de la traduction 2014 Cour des comptes européenne, 30 septembre 2014

aux décideurs politiques et aux gestionnaires de fonds européens, la Cour a besoin de faire entendre sa voix de la manière la plus claire possible. C’est là qu’intervient la traduction : en tant que premiers lecteurs des rapports de la Cour, les traducteurs aident à identifier les éventuelles ambiguïtés ou maladresses dans les textes, contribuant ainsi à la qualité des produits délivrés par la Cour. Plus important encore, à travers la traduction, les documents de la Cour deviennent accessibles dans tous les États membres de l’UE et à tous les niveaux de la société.

L’intervention du professeur Hagège nous a transportés dans le territoire fascinant des langues, dans un voyage à travers les continents et les cultures. Polyglotte célèbre, ayant des connaissances dans une cinquantaine de langues, parmi lesquelles l’italien, l'arabe, le mandarin, l'hébreu, le russe, le persan, l'hindi, le peul, le quechua et le japonais, le professeur Hagège nous a offert un excellent discours, marqué d’éloquence et de passion, dans le plus pur style des grands orateurs français. Il nous a expliqué quelles étaient les principales difficultés rencontrées par la traduction dans les différentes langues, en assortissant ses explications théoriques de nombreux exemples illustrant que le diable se cachait effectivement dans les détails. Attention aux mots ! Ce n’est pas un hasard si au commencement était le Verbe. Les mots peuvent construire ou détruire un monde. C’est pourquoi il faut les choisir avec soin, sans quoi ils peuvent être destructeurs. Ainsi, l’exercice de traduction n’est pas une tâche aisée, chaque mot pouvant être lourd de conséquences : un simple article déterminé peut s’avérer plus puissant que mille chars d’assaut. En effet, selon le professeur Hagège, la langue peut

Claude Hagège, professeur honoraire au Collège de France, linguiste et écrivain, Vítor Caldeira Président de la Cour des comptes européenne, Gailé Dagiliené, Directrice de la traduction

Claude Hagège, professeur honoraire au Collège de France, linguiste et écrivain

38Journée de la traduction 2014 continued

devenir un instrument politique au service des États, elle peut contribuer à étendre la dominance économique et politique d’un État sur les autres, à imposer une pensée unique, contraire à la diversité et à la richesse culturelle que l’Europe s’efforce de préserver. Pour le professeur Hagège, qui est un amoureux des langues, il faut aimer les langues pour ce qu’elles sont : une source de culture et de richesse spirituelle, un moyen de transposer l’âme d’une communauté, de la rendre vivante et de l’ouvrir vers le monde.

L’excellent discours du professeur Hagège n’a fait que renforcer l’idée de l’importance que la traduction doit occuper dans l’UE en général et à la Cour des comptes en particulier.

Ainsi, dans son allocation, Mme Gailė Dagilienė a souligné la valeur ajoutée que le service de traduction apporte aux travaux de la Cour : au-delà de la traduction proprement dite, l’assistance

linguistique offerte par les traducteurs lors des missions dans les États membres ou au siège de la Cour s’avère être un service fort utile et très apprécié par les auditeurs.

Le rôle joué par la traduction est donc indéniable. Les conséquences que peuvent engendrer l’absence de traduction ou la traduction réalisée par des non-professionnels sont parfois très importantes. Cela est très bien illustré par un exemple venu d’outre Atlantique, où l’on parle, dans le monde des traducteurs, du « 71 million dollars word ». Il s’agit de la somme reçue comme compensation par un

patient auquel l’hôpital n’avait pas fourni de services professionnels d’interprétation et qui, par conséquent, avait été mal diagnostiqué. Comme on le voit, les coûts de la non-traduction peuvent être parfois très élevés.

Mais, au-delà de la valeur matérielle, il faut davantage penser à la traduction comme étant un vecteur de communication, un « pont » entre les langues et les peuples, ainsi que M. Caldeira le suggérait dans son discours. Tout comme une œuvre littéraire est décryptée aux lecteurs par l’intermédiaire de la traduction, le message de la Cour est envoyé aux quatre coins du continent dans une forme compréhensible pour ceux qui vont le lire, c’est-à-dire dans leur langue maternelle. C’est ainsi que la traduction contribue à la démocratisation du travail de la Cour et c’est là que réside la valeur ajoutée de notre service.

39

The context

Regulation (EC) No 1606/2002 of the European Parliament and of the Council of 19 July 2002 on the application of international accounting standards (IAS) has paved the way for a convergence of financial reporting standards throughout the EU.

International Financial Reporting Standards (IFRS) have been applicable since 2005 for the consolidated accounts of listed companies in the EU. The Transparency Directive (2004/109/EC), as subsequently amended, also stipulates that all issuers (including non-EU) whose securities are listed on a regulated market located or operating in an EU country must use IFRS.

In the wake of the financial crisis the EU Commissioner for Internal Market and Services, Michel Barnier, mandated Philippe Maystadt in March 2013 to examine ways of reinforcing the EU's contribution to International Financial Reporting Standards and improving the governance of the European bodies involved in developing those standards.

On 13 March 2014 the European Parliament backed a Commission proposal for EU co-financing of the International Financial Reporting Standards Foundation and the European Financial Reporting Advisory Group (EFRAG).

The European Commission’s public consultation

The Commission has decided to measure the impact of the IAS regulation within the EU against its original aims. This evaluation will also address the IFRS experience in Europe so far. The public consultation period on the impact of IFRS in the EU started on 7 August and continues until 31 October 2014. Citizens and organisations - notably capital

By Rosmarie Carotti

Evaluating the impact of International Financial Reporting Standards in the EU

A meeting was organised by the Association of Chartered Certified Accountants (ACCA) and hosted by Theodor Dumitru Stolojan, MEP in the European Parliament in Brussels, on 25 September 2014.

market participants and companies preparing financial statements or using them for investment purposes - are asked to complete an online questionnaire.

This was the background to the ACCA’s invitation. The discussion was moderated by Richard Martin, of the ACCA, and articulated around the six topics of the questionnaire.

The roundtable

Theodor Dumitru Stolojan, MEP and rapporteur on the Union programme 2014-2020 supporting specific activities on financial reporting and auditing, was the host of the event. He reported about the political debate held in the European Parliament on IFRS and the decision to co-finance EFRAG and the IFRS Foundation from the European budget. Conclusions about ten years of IFRS in the EU will be presented by the European Commission by the end of the year.

Didier Millerot, DG MARKT European Commission, explained that the aim of the Commission was to establish a global set of high quality IFRS. It was its duty to look at the impact of such a decision on the functioning of the Single Market and at the costs and benefits for companies and countries. The results of the online consultation will lead to a European Commission report which will be discussed by the new Commission. Nevertheless, the outcome of the consultation will not necessarily lead to a new proposal of legislation for financial reporting. The European Commission will conclude whether a new system has to be turned into EU law.

Vincent Papa, Chartered Financial Analyst (CFA Institute), focused on the need for investors to have information which reflects economic reality and comprehensive disclosure. IFRS have been, in his mind, a success but investors raise points to be addressed, such as avoidable complexity, limited comparability and incomplete information.

Professor Colin Haslam, Queen Mary University London, analysed the issue of information disclosure from an academic perspective. He

Didier Millerot, DG MARKT; Theodor Dumitru Stolojan, MEP

40

identified the volatility in the financial system and the need to cope with it. The other challenge is balance sheet instability which needs to be incorporated into standards. But he suggests not to rush into anything and calls for a progressive set of adjustments.

For Melanie McLaren, Financial Reporting Council (FRC), IFRS are about achieving a common vocabulary. Many firms in the UK chose to opt for IFRS because this makes them attractive for investment. Mark Vaessen, Fédération des Experts Comptables Européens (FEE), reminded that before 2005, 25 national Generally Accepted Accounting Principles (GAAPs) were applied in the EU, and in many countries there was no national enforcement mechanism. Many were turning to the US GAAP by default. Ten years later, most countries show a tremendous improvement in financial reporting. Europe is increasingly achieving a common accounting language.

Claes Norberg, Uppsala University, described how Sweden started switching from national GAAPs into the old IFRS back in 1999. Conversion came in 2005 and was a gradual step. IFRS as a global standard would be for him the ideal and efficient global reporting system which reflects the economic substance of transactions. By using global standards the competitiveness of Europe may even be improved.

Ricardo Sanchez, Member of the European Banking Federation (EBF), discussed the difficulty of comparing the costs of complying with IFRS today with those which would have been incurred with national GAAPs if they had undergone major evolution. High quality standards and financial reporting is clearly a cost-benefit issue but most of the costs associated with financial reporting do not come from IFRS.

The quality of IFRS

The Commission will look at the mechanics of the regulation and the endorsement system of the standards. EFRAG plays a very important role in advising the Commission on technical issues before it takes its decisions. Last summer the Commission decided to appoint a dedicated expert group that brings together the representatives from industry, the competent authorities, enforcement agencies like ESMA and national standard setters.

From an academic point of view the European accounting project is evolving very positively. There is definitely a benefit to be gained from moving towards a more stable approach. The answer to those people calling for sub-global European standards is that this would mean less consistency, less comparability and transparency. It would also mean more costs and many more opportunities for people to disagree.

Europe has high quality financial reporting and is contributing to more transparent, more robust and more effective capital markets, even if concerns about complexity remain. But it shall not be forgotten that IFRS are trying to reflect the financial reality of complex transactions, rather than making those transactions complex per se.

Costs and benefits in Europe

There is a lot of talk about costs and very little about the benefits which often are intangible and therefore difficult to measure. However they should not be forgotten.

IFRS make firms attractive for investment. In 2005, Europe needed to seize the opportunities of the Single Market; today it needs to seize the opportunities of the global market. Europe needs growth and jobs. It needs financing and integration of its capital markets. It needs foreign investment and the benefits given by international standards.

Over 100 countries now use IFRS. The European Commission and Parliament can be satisfied that after ten years there is confirmation that they made the right move.

Among the panel there was consensus that the benefits of IFRS outweigh the costs.

From left to right: Colin Haslam, Queen Mary University London; Ricardo Sanchez, EBF; Mark Vaessen, FEE; Richard Martin, ACCA; Melanie McLaren, FRC; Claes Norberg, Uppsala University; Vincent Papa, CFA Institute

Evaluating the impact of International Financial Reporting Standards in the EU continued

ISSN 1831-449X

For more information:

European Cour t of Auditor s12, rue Alcide De Gasperi1615 LuxembourgLUXEMBOURGeca- info@eca.europa.eu

eca.europa.eu

EUAuditorsECA

QJ-A

D-14-010-2A-N

Main Contents

02 REFLECTIONS ON THE 2013 ANNUAL REPORT OF THE ECA Interview with Lazaros S. Lazarou, ECA Member responsible for the statement of assurance 05 EU ACCOUNTABILITY CONFERENCE 2014 11 CONTACT COMMITTEE 2014

13 THE EUROPE 2020 STRATEGY – AN OPPORTUNITY FOR CLOSER CO-OPERATION 17 2004 TEN YEARS OF ENLARGEMENT 2014 National Audit Office of Lithuania Czech Supreme Audit Office

25 SPECIAL REPORT N° 13/2014 29 SPECIAL REPORT N° 15/2014

35 LA CERTIFICATION DU SERVICE D’AUDIT INTERNE

@EUAuditorsECA