Feb 26, 2021
‘Adding value’, the raison d’être of the European Union
Adding value and performance are concepts that regularly intertwine in budget discussions and represent a key reason why public audit institutions come into play. Gabriele Cipriani worked for over 40 years at the ECA, including many years as an audit director. He has also written several publications on the EU budget. In his contribution he analyses why achieving European added value is a condition sine qua non for the Union as a whole. But how does this concept relate to the audits carried out by the ECA? For the ECA’s Statement of Assurance audit work, he advocates the need to assess legality/regularity and performance aspects together, as the two are inseparable sides of the European added value coin.
By Gabriele Cipriani, retired former director at the ECA
‘Adding value’
In his address to the inaugural session of the High Authority of the Coal and Steel Community — which took place on 10 August 1952 — Jean Monnet defined the founding principle of the European project as the subordination of a portion of national sovereignty to the common interest. This do ut des rationale reflects the idea that in certain areas action at EU level would make Europe stronger by achieving more than the Member States could do acting in isolation. This is subject to a clear assessment of ‘the existence, scale and consequences of a problem and the question whether or not Union action is needed’ (1).
This rationale is regularly referred to in the framework of the EU budget under the concept of ‘European added value’ (EAV). In this case, Member States transfer a portion of national revenue to the EU, the aim being to ‘attain its objectives and carry through its policies’ (2) through a common legal framework. The legitimacy of such revenue depends on securing ‘a better deal for citizens than spending at national level’ (3). This expectation calls for ‘clear and visible benefits for the EU and for its citizens’ (4), a goal reflected in the European Commission’s duty to provide an evaluation report ‘based on the results achieved’ (5). Fulfilling such expectation is of the utmost importance. As observed by the ECA, ‘trust in the EU diminishes if added value is not demonstrated’ (6).
For a long time the ECA has advocated the need to embody the EAV concept in a suitable political declaration or in EU legislation, with a view to providing criteria for the guidance of the Union’s political authorities (7). As it argued, this is necessary not only to allocate resources but also to design and evaluate spending programmes, to be based also on a comparison of their performance (8).
Yet, EAV is admittedly a multi-faceted concept. The political reality has made of EU spending a compromise between different rationales and national stances. The Commission’s intention to provide, in preparation of the 2021–2027 Multiannual Financial Framework, an EAV assessment of each spending programme fell short of its ambitions (9). Furthermore, for a number of initiatives no impact assessment has been made (10).
EAV and the ECA
The overall EU aim of providing the best performance in the common interest is a matter in primis for EU institutions. Their relevance depends on ensuring the ‘consistency, effectiveness and continuity’ of EU policies and actions (11) within the tasks entrusted to them. This is vital since ‘the loss of trust of citizens in EU policies and institutions’ represents a key future challenge for the EU (12).
cost-effective scrutiny, focusing on what matters most and creating incentives for the best use of taxpayers’ money. Responding appropriately to expectations, emerging risks and changing environments requires selective choices in audit priorities and the allocation of resources. In this respect, the Treaties gave to the ECA a discretionary power, hence the right (and responsibility) to take the necessary decisions, in the light of the principle of effet utile that requires the most cost-effective interpretation of EU law (13).
Among its strategic priorities, the ECA has indicated its intention of enhancing the added value of its annual audit opinion (Statement of Assurance), currently its priority task, to which more than one third of its audit resources are allocated. Since its inception (financial year 1994), the methodology for producing its Statement of Assurance has been a divisive subject, both inside and outside the ECA. As recently observed by a peer review, there is a broad range of very divergent views on the Statement of Assurance’s added value (14). In particular, this concerns the exclusion of value for money from its audit scope and the ‘error rate’ driven approach, based furthermore on a one-size-fits-all materiality threshold across all policy areas, regardless of their risks and peculiarities.
Enhancing the EAV of the ECA’s Statement of Assurance
The opportunity for a rethinking of the Statement of Assurance methodology is provided by the fundamental change of the EU’s financial management framework in the last thirty years. Largely inspired by the ECA itself (15), a framework of common standards has been put in place at the Commission and within hundreds of implementing bodies. This framework is founded on the Commission’s supervision, which should ensure that Member State levels are operating effectively and as intended (16). It ‘should provide reasonable assurance on the legality and regularity of transactions, and compliance with the principles of economy, efficiency and effectiveness’ (17).
The significant investment in resources and structures behind this framework could be the basis for a broader and more meaningful Statement of Assurance concept, putting an end to the unnatural separation between legality/regularity and value for money. In line with an ‘attestation’ approach, and subject to the necessary professional scepticism and professional judgement (18), the ECA could assess whether the management information presented by the Commission gives a ‘true and fair view’ of budgetary implementation, so as to underpin the confidence of intended users (19). This would concern the management of the risks and estimates of error that the Commission establishes at two key stages in the budgetary implementation cycle (at payment and at closure) (20), as well as the reliability and relevance of the Commission’s performance reporting (21).
The aim would be to provide a comprehensive assessment based not only on quantitative benchmarks (estimates of error) but also on qualitative elements of nature and context, such as the sensitive nature of certain transactions or programmes, the public interest, the need for effective legislative oversight and the type of irregularities (22). Non-compliance with value for money requirements should warrant due consideration in the final ECA assessment (23). Indeed, to what extent can expenditure be legal/regular if it does not meet ‘value for money’ requirements?
The approach sketched above will have three main consequences. By providing an assessment of the effectiveness of the internal control framework — currently outside the Statement of Assurance scope — it would foster responsibility and accountability on the part of the competent management authorities in a context of lack of ownership for EU budget implementation (24). Secondly, the ECA could abstain from establishing its own error rate, which is not required by the Treaties or by professional audit standards (25). Finally, as ECA work would require less direct transaction testing, the audit burden on implementing bodies and beneficiaries would be reduced.
The ECA’s key stakeholders — such as the European Parliament, the Council and the Commission — would probably need time to familiarise themselves with such a new concept of the Statement of Assurance. In this process, the ECA needs to highlight the added value of such a change in the long run. Making the relevant management authorities more responsible for the outcome, including performance, of EU-funded measures will enhance the quality and output of these measures, leading to increased EU added value for citizens — the raison d’être for setting them up in the first place. This would be a win-win situation that would sit well with the ECA’s current strategy: enhancing performance will increase added value, contributing to citizens’ trust in the EU.
1 Interinstitutional Agreement between the European Parliament, the Council of the European Union and the European Commission on Better Law-Making, 13 April 2016, paras 12–13. Ex-ante impact assessments are required for Commission legislative or non-legislative initiatives, delegated acts and implementing measures expected to have significant economic, environmental or social impacts. They should provide to the EU legislative authorities, on a comparative basis, a range of feasible policy options addressing the problem, in particular whether there is a need for spending at EU level and/or non-budgetary measures (such as legislative, regulatory and coordination actions). The efficient allocation of resources at EU and national level, so to deliver to best effect, might suggest ultimately to take no action at EU level.
2 Art. 311(1) of the Treaty on the Functioning of the EU.
3 European Commission. The EU Budget Review. COM (2010) 700 final, 19 October 2010, p. 5.
4 ECA, Response to the Commission’s paper ‘Reforming the budget, changing Europe’, April 2008, para 8.
5 Art. 318 (2) TFEU.
6 ECA, Audit Strategy 2018–2020, p. 4. In this respect, when asked if they think that the EU budget provides good value for money, more than 40 % of EU citizens believe that this is not the case. Most importantly, more than a quarter of Europeans express no opinion on this subject (Standard Eurobarometer 83, Europeans and the European Union budget, May 2015, p. 7).
7 ECA, Response to the Commission’s paper ‘Reforming the budget, changing Europe`, op. cit., para 9.
8 ECA, EU Budget: time to reform?, November 2016, paras 17–18; ECA, The Commission’s proposal for the 2021–2027 Multiannual Financial Framework, July 2018, para 26.
9 ECA, The Commission’s proposal for the 2021–2027 Multiannual Financial Framework, op. cit, para. 24.
10 For example, the European Fund for Strategic Investments, the common provisions for seven EU funds under shared management, the Just Transition Fund and the European Fund for Sustainable Development.
11 Art. 13.1, Treaty on EU.
12 European Commission, Draft general budget for 2020, section V, Court of Auditors, COM (2019) 600, 5.7.2019, p. 3.
13 European Court of Justice, Judgment of 14 October 1999, case C-223/98 — Adidas, para 24.
14 International Peer review assessing the implementation of the European Court of Auditors’ Strategy for 2018–2020, March 2020, paras 7, 14–15. One may note that the SoA media coverage is significantly lower when compared to other ECA publications. The same is true concerning the degree of implementation of ECA recommendations (ECA, Activity report for 2019, pp. 49, 53).
15 ECA Opinion №2/2004 on the ‘single audit’ model.
16 ECA Opinion №2/2004, op. cit., para 39.
17 ECA Opinion №2/2004, op. cit., para 57. In particular, internal control systems should provide, at all levels of management, reasonable assurance concerning value for money of the operations; reliability of reporting; prevention, detection, correction and follow-up of fraud and irregularities; and adequate management of the risks (Article 36 of Parliament/Council Regulation (EU, Euratom) №2018/1046).
18 ISSAI №100, Fundamental Principles of Public-sector Auditing, paras 29–30, 37.
19 This refers in particular to the EU accounts, programme statements, director-general annual activity reports and the annual management and performance report. In line with its right to perform a continuous audit, with unrestricted access to any document or information it considers ‘necessary to carry out its task’ (Art. 287.3 (1)(2) TFEU), the ECA may have to examine the internal processes leading to such reporting, prior to statutory publication deadlines. One may note that in 2021 the ECA will assess the adequacy of the Commission’s work and the reliability of its reporting on legality and regularity of Cohesion spending, as well as the closure of the ERDF/ESF 2007‐2013 financial instruments.
20 This means that for the significant part of EU expenditure characterised by multi-stage payments spread over several accounting years, the ECA may have to perform direct testing procedures of final balances that are at much greater risk of error. The extent of ECA direct testing would depend on the assurance provided at regular intervals throughout the programme period, with a view to checking the adequacy of the procedures in place.
21 This would include evaluating the progress of the Commission’s ‘EU budget for results’ initiative, whose aim is to put performance at the core of the EU budget and its implementation.
22 ISSAI №400, Compliance Audit Principles, para 47; ISSAI №4000, Compliance Audit Standard, paras 125–130.
23 This would avoid, as in the case of EU support for farmers’ incomes (around €41 billion/year), such expenditure being considered free from material error (Statement of Assurance) and, at the same time, a scheme that is neither the most efficient way of ensuring a viable income nor appropriate for addressing many environmental and climate concerns (ECA performance reports).
24 This issue is dealt with in Cipriani, G. (2010). The EU Budget: Responsibility without accountability? Brussels: Center for European Public Studies and Cipriani G. (2017). The EU Budget, the Accountability Gap and a Possible Way Forward, in The New Politics of the European Union Budget, Becker, S., Bauer, M.W., and De Feo A. (Eds.), pp. 225–258. Baden-Baden: Nomos.
25 In fact, error estimates are a management responsibility with a view to applying financial corrections in which the ECA has no role, not least because its findings are not binding.
This article was first published on the 3/2020 issue of the ECA Journal. 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.
