ACCOUNTABILITY ISSUES IN EUROPEAN FISCAL GOVERNANCE
There are many dimensions to the concept of accountability in the public sector and those you consider important will depend on your viewpoint, as well as your operational role within the public sector. Two key aspects of accountability in the eyes of public auditors are public officials and institutions accounting for their actions and ensuring that their performance is measurable. Nikolaos Milionis, an ECA Member since 2014, who previously held a variety of posts at the Hellenic Court of Audit, zooms in on both aspects in the context of what he terms fiscal accountability, including the usual accompanying accountability arrangements. He also identifies accountability gaps in certain areas of the EU’s activities where thought could be given to addressing shortcomings in the checks and balances arrangements, which are, he believes, “on the margins of accountability” in the context of the European project.
By Nikolaos Milionis, ECA Member
The concept of public accountability
Accountability is a diverse and nuanced concept¹ . It is historically and semantically linked to the concept of accounting² . Accountability was originally defined as the accountable person’s obligation to provide information³ or render account in respect of an activity or transaction⁴. This literal concept of being accountable, i.e. giving an account of one’s actions, reflects the traditional relationship between subject and ruler. The concept and use of the word have changed over time. “Accountability” is now a term used in political philosophy, constitutional legislation, modern governance and management science.
The concept changed drastically with the advent of ‘New Public Management’. This era, which began in the Anglo-American sphere in the 1980s, is associated with the transfer of private-sector ideas and administrative practice into public administration, placing the emphasis on cost-benefit auditing, financial transparency, and increased accountability to citizens in terms of the quality of services offered, measured by performance indicators.
Accountability is perceived as a virtue, and therefore ethical. Broadly speaking, accountability (as valuebased behaviour) is a concept closer to a sense of responsibility, and particularly a desire to act in a transparent and fair manner. In this highly value-based scenario, accountability is linked to the rules of conduct and ethics applicable to public officials, e.g. with regard to conflict of interest, restrictions on electoral funding, measures relating to respect for administrative transparency and supervision, etc.
However, in the strict sense, accountability, as a relationship mechanism⁵, is understood to be the relationship between the accountable person or public organisation (bodies) and the institution to which they are obliged to explain and justify their conduct. The accountable body’s obligation may be formal or informal. Public officials and employees are formally required to provide accounts and reports at regular intervals. An informal accountability obligation is that of providing clarifications to the press, to inform public opinion. Account may be given to institutions such as Parliament or a ministry (political accountability) and the courts or Supreme Audit Institutions (legal or fiscal accountability), as well as the media or social media (social accountability)⁶. Such institutions may ask questions and criticise, while the accountable person or public organisation must provide explanations (accountability)⁷.
There is no consensus as to whether the imposition of penalties is an essential element of accountability. Hence, it is preferable to use a neutral expression, such as “attribution of responsibility”. This may take the form of either standard consequences, such as fines, disciplinary measures, compensation and even criminal penalties, or unwritten rules, such as ministers’ political accountability to Parliament, which may result in them having to resign. The negative consequences of being accountable can sometimes be more drastic, as in the case of politicians’ informal accountability to the media, which may result in their public image being tarnished and their political career ruined in the wake of negative publicity⁸.
The concept of fiscal accountability
Fiscal accountability concerns, in particular, supervision of the use of public money. It involves, first and foremost, confirming the legality and regularity of the transactions underlying public accounts⁹. The concept of good financial management is also promoted as a means of controlling public money, the aim being to ensure that public policies achieve the three Es of economy, efficiency and effectiveness.
To meet the public accountability requirements regarding the use of public resources, modern States have set up specific systems for monitoring the implementation of public policies, and submitting the relevant reports (e.g. the Ombudsman, independent authorities, etc.). The most important instrument for monitoring the use of public funds is financial audit. This is carried out by the Supreme Audit Institutions (SAIs), whether in the form of judicial authorities or audit institutions, which were set up and operate for this purpose, alongside Parliament’s Committee on Financial and/or Economic Affairs, i.e. to supervise and verify the veracity of expenditure.
The explanation of the role of public audit in terms of accountability that is given in INTOSAI Pronouncement No 12 states that “Public sector auditing, as championed by the Supreme Audit Institutions (SAIs), is an important factor in making a difference to the lives of citizens. The auditing of government and public sector entities by SAIs has a positive impact on trust in society because it focuses the minds of the custodians of public resources on how well they use those resources. Such awareness supports desirable values and underpins accountability mechanisms, which in turn leads to improved decisions. Once SAIs’ audit results have been made public, citizens are able to hold the custodians of public resources accountable. In this way SAIs promote the efficiency, accountability, effectiveness and transparency of public administration. An independent, effective and credible SAI is therefore an essential component in a democratic system where accountability, transparency and integrity are indispensable parts of a stable democracy”.
Accountability arrangements for EU institutions and bodies
In the context of the EU, accountability includes the institutions’ obligation to account for:
- the political decisions they have taken and the objectives set;
- the implementation and results of Union policies;
- the use of funds from private or international sources mobilised to implement EU policies, and the related projects’ compliance with the Union’s strategies;
- the effectiveness of the Union’s response to systemic risks to the economic interests of the Union and its member states.
Pursuant to Article 318 TFEU, ‘The Commission shall submit annually to the European Parliament and to the Council the accounts of the preceding financial year relating to the implementation of the budget’. The European Court of Auditors, pursuant to Article 287(1) TFEU, ‘shall examine the accounts of all revenue and expenditure of the Union’, while the European Parliament, ‘acting on a recommendation from the Council, shall give a discharge to the Commission in respect of the implementation of the budget’, pursuant to Article 319 TFEU.
‘Discharge’ means the closure of the accounts for a given financial year and relates to the amount of revenue and expenditure effected on the basis of the accounts presented by the European Commission, which is the manager of and accounting officer for the EU budget. The Commission and the majority of the Union’s other institutions and agencies are subject to the discharge procedure, which is the culmination of the political accountability process.
Accountability gaps in the EU
When reviewing EU organisations and instruments, we are able to identify various gaps where accountability arrangements are limited or incomplete, be it in reporting, aspects of public scrutiny or what is actually covered. In its special report 05/2023, the ECA identified such gaps at a broader level and made various recommendations addressing them (see also page 64). Below you will find examples of EU organisations and actions in which such gaps are evident and whose impact on the EU is considerable.
European Central Bank
Under Articles 130 and 282 TFEU, the European Central Bank (ECB) and the national central banks of the euro-area countries are independent of the other EU institutions and the governments of the member states. The ECB is not funded from the EU general budget, and the Protocol¹⁰ does not provide for budgetary discharge by Parliament.
As an accountability mechanism, the Treaty provides for the ECB issuing reports on the European System of Central Banks’ (ESCB) activities at least quarterly¹¹, and submitting a report on the ESCB¹² and monetary policy to the European Parliament, Council and Commission every year. The President of the ECB is required to present the report to the European Parliament and the Council for a general debate. Rule 135 of the Parliament’s Rules of Procedure provides for the ECB President being invited to address the European Parliament four times a year, and for ad hoc invitations to be extended to members of the Executive Committee so that there is a regular exchange of views. The ECB also replies to written questions received from Members of the European Parliament.
The regulations establishing the Single Supervisory Mechanism entrusted the ECB with exercising oversight over the credit institutions of member states in the euro area¹³. The founding regulation provides for a specific accountability regime. Further details on the accountability of the Single Supervisory Mechanism were laid down in an interinstitutional agreement with the European Parliament¹⁴ and a Memorandum of Understanding with the Council¹⁵.
The extent to which central banks are subject to independent external audit by public external auditors varies from country to country. As regards the ECB, its accounts are audited in accordance with the Treaty¹⁶ by independent external auditors and not by the ECA. The ECA’s audit powers “only apply to an examination of the operational efficiency of the management of the ECB” (operational efficiency)¹⁷. This wording limits the ECA’s remit.
European Investment Bank
The European Investment Bank (EIB) is the EU’s financing institution and contributes to European integration, growth and cohesion by financing projects that support EU policies. The European Investment Fund is the EU’s specialist vehicle for providing venture capital and guarantees that boost mainly SMEs and new technologies.
The EIB constitutes a ‘special case’ under the current accountability arrangements in that, while it has the status of an EU body, its capital is provided by the member states and it is therefore accountable to the Board of Governors, which comprises the member states’ Finance or Treasury Ministers.
There are no specific provisions requiring the EIB to report to the European Parliament, nor does the Parliament have any authority over the EIB. The European Parliament has expressed concerns about the EIB’s accountability on several occasions in recent years, including with regard to:
- the level of prudential supervision of the EIB;
- the fact that certain areas of the EIB’s management of EU programmes and funds are excluded from the discharge procedure to which EU spending is generally subject, and it is not required to report on the results achieved¹⁸;
- the assessment of activities with major multiplier effects that are guaranteed by the EU budget;
- the need for a detailed explanation of the administration fees the EIB receives from the EU budget.
European Stability Mechanism
The European Stability Mechanism (ESM) has a Board of Auditors (BoA) — to which the ECA appoints a member — that is responsible for inspecting the ESM accounts and verifying that the operational accounts and balance sheet are in order¹⁹. The ECA does not have audit rights but may acquire them on request. In a 2018 opinion²⁰, the ECA pointed out the short duration of BoA members’ term of office, and the very limited extent of both the audit findings reported and the evaluation of ESM performance. A private external auditor draws up the opinion on the ESM’s financial statements in accordance with international auditing standards.
Self-financed EU agencies
Some EU agencies are not funded directly by the EU budget. Such agencies are either entirely selffinanced (e.g. the European Union Intellectual Property Office and the Community Plant Variety Office) and audited by the ECA, or financed by member states’ contributions (e.g. the European Defence Agency) and audited by independent external auditors²¹. The management of these entities is not subject to the European Parliament’s discharge procedure. However, even though their revenue is not sourced from the EU budget, it is generated as a result of public authority exercised at EU level, and the public nature of the use of these resources is no different to that of other EU funds. Hence, there appears to be no compelling reason for this difference in treatment in terms of accountability, including the public scrutiny arrangements.
Recovery and Resilience Facility
As regards the Recovery and Resilience Facility (RRF), the ECA assessed²² the appropriateness of the design of the Commission’s control system for the Facility by examining whether it had been set up to ensure that milestones and target values are achieved and the financial interests of the Union are protected. It concluded that the system provides only limited verified information at EU level on the extent to which RRF-funded investment projects comply with EU and national rules, which impacts the level of assurance the Commission can provide and gives rise to an EU-level accountability gap.
Checks and balances as a sine qua non of public policy-making
We have highlighted the importance of the ECA having audit rights and advocated that public audit mandates be established for all types of EU-policy financing, and that the ECA be invited to audit all bodies set up to implement EU policies on the basis of agreements concluded outside the EU legal order. The European Parliament has limited oversight over some of the agreements in question.
Public accountability is a fundamental institutional principle of the EU project. The constitutional requirement of checks and balances in public institutions manifests itself in the procedure under which the Commission is granted discharge by the European Parliament on the basis of the ECA’s audit findings. This is the culmination of a logical process whereby the managers of European public money are held accountable before the European taxpayers’ representatives. This can, of course, be replaced by rules instituting other means of rendering accountability, which may or may not be adequate. However, we can conclude from my analysis and the examples set out above that there are gaps in these checks and balances in the sense that a significant part of the management of the European budget remains on the margins of accountability. To improve this situation, the Commission should engage with the legislative authorities in order to try to plug these gaps. Improving accountability, transparency, and audit arrangements across all types of EU action is also one of the key goals of the ECA’s 201–2025 strategy.
1. See: Bovens, M., Curtin, D and ’t Hart, P., Studying the Real World of EU Accountability: Framework and Design, in: The Real World of EU Accountability, What Deficit? Oxford University Press, 2010, p. 31 et seq., in particular p. 32; Bovens, M., Analysing and Assessing Accountability: Α Conceptual Framework, in: European Law Journal, Vol. 3, No 4, July 2007, p. 447 et seq., in particular p. 448.
2. See: Soll, J., The Reckoning, Financial Accountability and the Making of Nations, London, 2014, p. 3.
3. See: Stewart, J.D., The role of information in Public Accountability, in: Hopwood, A. G., Tompkins, G.R. (Eds), Issues in Public Sector Accounting, 1984, p. 13–34.
4. See: Wathelet, J.C., Budget, comptabilité et contrôle externe des collectivités territoriales — Essai prospectif, in : L’Harmattan, 2000.
5. See Hood, C., The New Public Management in the 1980s: Variations on a Theme, Accounting, in: Organizations and Society, volume 20(2–3), p. 93–109.
6. OECD, European Principles of Public Administration, 1999, op. cit., p. 12.
7. See Bovens, M., Two Concepts of Accountability, op. cit., in Bovens, M., Curtin, D. and ’t Hart, P. (eds), op. cit., pp. 33 and 34.
8. See March, J. G., Olson, J.P., Democratic Governance, New York, 1995, p. 167; White, F., Hollingsworth, K., Audit, Accountability and Government, Oxford, 1999, p. 6; Rabrenović, A., Financial Accountability as a Condition for EU Membership, Institute of Comparative Law, Belgrade, 2009, p. 32.
9. See Lord Sharman of Redlynch, Holding to Account, The Review of Audit and Accountability for Central Government, February 2001, pp. 9–25, www.hm-treasury.gov.uk
11. Article 15, Protocol No 4 TFEU. In practice, the ECB meets this requirement by publishing monthly bulletins.
12 .Article 284(3) TFEU.
13. Council Regulation (EU) No 1024/2013 of 15 October 2013 entrusting the ECB with specific tasks concerning policies relating to the prudential supervision of credit institutions (OJ L 287, 29.10.2013, p. 63).
16. The independent external auditors are appointed by the Executive Board and approved by the Governing Council of the ECB, see Article 27 of Protocol 4 TFEU.
17. Article 27.2 of Protocol 4 TFEU
18. The ECA proposed that European Investment Bank operations that are unrelated to the EU budget also be included in its audit remit, proposal 6 of Review 01/2018: Briefing Paper ‘Future of EU finances: reforming how the EU budget operates’
19. Treaty establishing the European Stability Mechanism, article 30.
20. ECA opinion No 2/2018 The audit and accountability considerations concerning the proposal of 6 December 2017 for the establishment of a European Monetary Fund within the Union legal framework.
21. The problem is highlighted in the ECA’s 2017 Annual Report, par. 2.51, p. 75, footnote 54. The external audit of the agency is regulated by article 43 of its financial rules.
22. Special report No 7/2023 Design of the Commission’s control system for the RRF — Assurance and accountability gap remains at EU level in the new delivery model, despite extensive work being planned
