The European Court of Auditors – the EU’s financial watchdog

The guardian of the EU’s finances may not be the most widely known of the Union’s seven official institutions. Yet, its role in providing thorough budgetary oversight is increasingly important as the EU is preparing for unprecedented levels of spending.

What is the European Court of Auditors (ECA)?

The European Court of Auditors (ECA) is the EU institution that audits the Union’s finances. As the EU’s independent external auditor, the ECA checks whether the EU budget has been implemented correctly and if the Union’s funds have been raised and spent in a legal and financially sound manner. The ECA examines all revenue and expenditure by the EU and its bodies, offices and agencies. The primary target of the ECA’s audits is the Commission, which has the ultimate responsibility for implementing the EU budget. 

By scrutinising the Union’s budget implementation, the ECA looks after the EU citizens’ financial interest and serves a crucial role in upholding a democratic, accountable and transparent Union. The ECA’s work helps the EU policymakers to understand how the Union’s finances can be managed and harnessed better to deliver results that serve the interest of European taxpayers.

The ECA publishes the results of its work in the form of various publications, including opinions concerning legislative updates affecting EU financial management and reviews analysing diverse EU policy and management topics. The ECA’s audit work is captured mainly by its annual reports and special reports, which provide the basis for the yearly budget discharge procedure. 

Ensuring correct implementation of the EU budget

The Treaty of the European Union (TFEU) obliges the ECA to draw up an annual report at the end of each financial year. The annual report outlines whether the Union’s accounts for a given year are reliable and if income and spending comply with the relevant regulations. 

The European Parliament and the Council consider the ECA’s annual report together with the special reports in their deliberations to determine whether to approve the way the Commission implemented the EU budget during the year in question. This process is known as the budget discharge procedure. 

After reviewing the ECA’s reports and following the Council’s recommendation, the Parliament can decide to give the green light to the Commission’s way of implementing the EU budget. When the Parliament approves the Commission’s budget implementation, it “grants discharge” to the Commission. However, if the Parliament does not approve the budget implementation, it can “refuse” or “postpone discharge”. 

The annual discharge procedure enables the European Parliament and the Council to hold the Commission politically accountable for the way the Union’s money is managed. The ECA’s annual report and special reports are fundamental elements of this important process.

2019: Clean opinion

The ECA’s annual report concerning the implementation of the EU budget in 2019 was published in November 2020. In the report, the ECA gave “a clean opinion” on the reliability of the EU’s accounts. The auditors also concluded that, in 2019, the EU revenue was legal, regular, and free from material error. 

In plain English, this means that we have reasonable assurance that the money that the EU obtained and spent in 2019 was recorded in a reliable way in the Union’s accounts. In other words, the implementation of the EU budget was represented accurately in the Union’s financial statements and budget reports, which are put together by the Commission and then checked and assessed by the ECA. 

This is an important conclusion because it allows us as EU citizens to rest assured that there exists accurate records of the Union’s income, spending, assets and liabilities. In theory, we can therefore track down for what purposes our tax money has been used. 

Simple and clear rules are key to safeguard the EU’s finances

However, the ECA gave “an adverse opinion” on the Union’s expenditure. Put simply, the adverse opinion signifies that, in 2019, the Union’s payments were affected by too many errors. This means that a significant proportion of EU money spent did not comply with the relevant rules, even though the transactions were recorded in a mostly reliable way. 

To give an example, let us imagine a hypothetical scenario in which the Commission has a rule whereby each farmer in the EU may receive one hundred euros of financial support in a given timeframe for each hectare of land where barley is grown. When checking the Union’s expenditure, the ECA could find that the accounts state accurately that one hundred euros have been paid to several farmers. However, the ECA could then discover that some of the farmers in question were in fact cultivating wheat instead of barley. Therefore, the Commission’s expenditure would not comply with the applicable rule, even though the payments would be recorded reliably. 

The ECA’s adverse opinion on EU spending for 2019 highlights the importance of clear and simple rules for EU finances. The more complexity, the higher the risk of errors. 

In times of crisis, trust in the EU’s spending is more important than ever

The EU is currently heading towards unprecedented levels of spending. Through the envisaged multiannual financial framework (MFF) for 2021-2027 and the temporary recovery instrument “Next Generation EU”, the EU plans to pump €1,824.3 billion into its economy. The historically large EU budget will help the Union navigate through its major policies, including the European Green Deal and the digital revolution, while alleviating the economic and social implications of the Covid-19 crisis. 

In such exceptional times, it is imperative that the implementation of the Union’s budget is recorded correctly and that the spending delivers real added value. This will translate into an increased responsibility for the ECA to check that the EU money is obtained and spent in accordance with the applicable regulations and that the expenditure brings the intended results. 

Fundamentally, managing the EU budget is not only a matter of economic efficiency and tangible results; it is also a matter of accountability, transparency and trust. It is vital that we as European citizens can have full confidence in the way the Union’s money is managed. As the ECA’s President Klaus-Heiner Lehne puts it, in the current situation, “trust in the EU and its spending is more important than ever”.

This text expresses the personal opinion of the author and not that of the Court of Auditors.

TEXT Rosa Kotoaro
PHOTO Tumisu from Pixabay (https://pixabay.com/photos/audit-auditor-analysis-examination-4190944/)

The author is a London School of Economics (LSE) graduate with an MSc in International Political Economy. She is specialised in EU economic affairs and is currently working at the European Court of Auditors (ECA) in Luxembourg.

 

Tagit: European Court of Auditors, finance Kategoriat: Artikkelit, Eurooppalaiset instituutiot, In English, Nostot, Rahoitus
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