---

Financial Management

European debates are a bit like buses—we wait for one for ages, then three come along at the same time. For the first time, we are holding the debates on a Tuesday—they normally happen on a Wednesday to ensure that many members of the European Scrutiny Committee have to choose between its Committee meetings and the debates in the Chamber. Today is a Tuesday—it coincidentally happens to be the day of the inaugural address by the new President of the United States and, when I was voting, I noticed from the crowds surrounding the televisions that that seems to be the point of interest rather than European audit. However, that does not mean that European audit is not important and I am pleased to be here, given that, as Chair of the European Scrutiny Committee, I would not normally get to debate the subject on a Wednesday. I believe that the glass is half full—indeed, it is almost three quarters full and heading in the right direction. It was interesting to read all the documents in preparation for the debate. Our report of 12 January, which deals with the implementation of the 2007 European Union budget, concludes that"““the European Court of Auditors (ECA) identifies weaknesses in the procedures for financial control and management””—" that is an ongoing debate—"““such that again it is unable to give wholly unqualified Statements of Assurance for the General Budget and the European Development Funds.””" In the past, the European Court of Auditors has refused to give unqualified assurances of any kind. This time, it has been slightly more positive, not by reducing rigour but by perceiving the benefits of the changes that have taken place in the past few years. Our conclusion continues:"““The document identifies some positive developments in improving management of the Community's financial resources and we note the Ministers give relatively positive assessments of the situation.””" My hon. Friend the Economic Secretary repeated that this evening. The report goes on:"““But the need for further improvements in financial management and control is still clear.””" That sums up our position. We recommended the debate because we believed that it was important"““to consider again not only the continuing weaknesses in financial management””" and"““the need for further improvement identified in the ECA's Reports””," but"““to examine the justification for the relative optimism about future improvements in financial management.””" The document submitted by the European Union does not have a number. The reference on it is ““Official Journal OJ 2008/C 286/01 Volume 51 10 November 2008””. That is the best I can do to identify it. It has 10 chapters, which deal with the subject in detail, and my hon. Friend the Economic Secretary and the hon. Member for South-West Hertfordshire (Mr. Gauke) referred to it. The general introduction includes the heading, ““Chapter 1—the Statement of Assurance and supporting information””, under which it clearly states:"““The ECA have given an unqualified positive Statement of Assurance on the reliability of the EU accounts for the first time””." It is the first time that the ECA has said that it has all the information required to state that the accounts are reliable. That is different from saying that it is happy with what the accounts contain—major errors persist in the budget. On the general budget, the European Scrutiny Committee states that the European Court of Justice also"““gives a positive Statement of Assurance on the legality and regularity of the underlying transactions in the areas of revenue, 'administration and other expenditure' and 'economic and financial affairs', estimating that errors in these areas have a financial impact of less than 2 per cent.””." That is a significant improvement—the glass is more than half full. We should acknowledge those improvements —our Government and our members of the Court of Auditors have called for them and for initiating a new regime. We should not always say that we cannot manage the budgetary process. The Committee goes on:"““As for the audit of the European Development Funds the Court gives a clean opinion on the accounts but qualifies the Statement of Assurance on the legality and regularity of transactions in so far as they relate to payments.””" That is where our concern should lie. I shall refer to a letter from David Bostock, a UK member of the European Court of Auditors. He wrote to me as Chair of the ESC, and the letter was tabled at a Committee sitting. The second report in this bundle—which people may wish to read through, although it is very lengthy—is an important document on the fight against fraud. These are the two things we should wish to focus on in looking at any sets of accounts, regardless of whether they are for a private company, a Government Department, a voluntary organisation, a charity or the EU: are the accounts credible and can transactions be properly followed to find out whether payments are bogus or fraudulent? It is clear that action is being taken by the EU. As we recently noted, it unanimously denied Bulgaria the right to spend European funds. The country had an outstanding sum of €500 million of funds, but there were questions to do with high-level fraud and corruption in that country that were so great that the EU denied it the right to spend the money. This is an important matter, which the ESC has commented on for some time.