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EU added value in an audit context

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EU added value (EAV) is a multifaceted term and is used for many purposes and in different contexts. Reaching agreement on how to define EAV and its use is one thing, applying the concept in day-to-day auditing practice is another matter. What does EAV mean for public auditors at the ECA? And how should they apply it to their audits? Wilfred Aquilina from the Directorate for Audit Quality Control (DQC) is one of the authors of the methodological guidance on EAV that DQC developed two years ago. Below he explains what the concept means to ECA auditors and highlights some of the issues public auditors have to deal with when auditing EAV.

By Wilfred Aquilina, Directorate for Audit Quality Control

Defining the concept

The concept of EU added value (EAV) is an elusive one — a multifaceted term with different meanings to various stakeholders. The flexibility and fluidity surrounding the interpretation and application of the concept obviously make the results of EAV difficult and challenging for EU stakeholders to identify and isolate, and ultimately for us to audit.

Underpinning the concept of EAV are the EU principles of subsidiarity, proportionality, additionality and complementarity. The EU should not take action (except in the areas that fall within its exclusive competence), unless it is more effective than action taken at national, regional or local level. The content and form of EU action should also not go beyond what is necessary to achieve the objectives of the Treaties, and the policy approach and its intensity must match the objective being pursued and the problems being addressed.

Achieving clear additional benefits from a collective EU-wide effort, compared with action in an individual or a smaller group of Member States, is essential for the materialisation of meaningful EAV. Therefore, EU spending should avoid ‘crowding-out’ other public or private funding. Moreover, EU actions should be applied consistently and complement those actions supported in other EU and national programmes. This is necessary in order to maximise synergies and avoid duplication.

In 2018, the ECA established the following working definition of EAV: ‘EU added value (EAV) is the value that an EU action adds through EU policy, regulation, legal instruments and spending, over and above that created by Member States acting alone.’

Analysing the underlying motives and requirements

As auditors, we seek to gain a clear understanding of the requirements and the underlying motives and dynamics driving EU policy action and performance. Most of the EU-level actions tend to result from compromise between several rationales and interests, a political process which can also evolve over time from the rationale which originally justified the intervention. The motives can be of a legal nature, such as the consequence of the Treaty objectives and obligations, which lay down the competences and obligations of EU institutions. They can be driven by values and principles shared by Member States, or common objectives that Member States would like to see being effectively pursued and addressed. Economic, environmental and social pressures can also necessitate the need to develop EU-wide mechanisms. In addition, there are Member State interests on specific issues that one or more Member States may push to have addressed at EU level.

The concept of EAV has featured widely in many political debates. It is used to highlight the benefits and achievements of EU-wide intervention and cooperation. It serves as a guiding principle during the negotiations on the EU’s multiannual financial framework. It is also an integral part of the European Commission’s ‘Better Regulation’ framework, and an underlying requirement for the Commission’s proposals for new or renewed actions or interventions.

There is also a focus on results and EAV in the Financial Regulation applicable to the general budget of the EU adopted in July 2018. Evidence and assessment of the ‘added value of Union involvement’ is a requirement for all ex ante and retrospective evaluations supporting the preparation of programmes and activities (Article 34(3)). The Commission’s working documents presented together with the annual proposal for the draft EU budget should have information on the ‘added value of the Union contribution’ for specific EU actions (Article 41). The annual activity reports of EU institutions should include an overall assessment of how EAV was generated in the preceding year through the institutions’ activities and spending (Article 74(9)).

Applying the concept to performance audit

One of the main challenges that we face is how to apply the concept of EAV in an audit context, including the ways of how to assess the conditions that contribute to ‘EU added value’ and not simply ‘added value’. Moreover, what conclusions and meaningful recommendations can we take from such analysis as part of an audit?

There is potentially more than one role that the ECA can play in the assessment and audit of EAV. It can range from choosing to audit directly the achievement of EAV for a specific EU action, to focusing on the robustness of the auditee’s performance management system for measuring, assessing and reporting on EAV.

Choosing to directly audit the achievement of EU added value

Auditors planning to assess whether EAV has been achieved for a specific EU action can consider asking the following three key questions as presented in Table 1.

Table 1 — Key audit questions concerning EAV

The difficulties of coming to a definitive and robust conclusion on EAV should not be underestimated. Auditors attempting to assess whether the net increase in benefits for citizens, as a result of an EU action, was larger than a comparable national, regional or local intervention, will likely face a number of constraints.

Sufficient and clear information and insights needed to assess the inputs, efficiency, outputs, outcomes and impacts of the measures at EU and national levels may not always be available or are incomplete. The application of counterfactuals is also difficult and there is no uniform prescription on their use. Moreover, measuring the full financing costs, as well as the benefits (particularly the indirect ones), is likely to be tricky, and ultimately not feasible, or inconclusive. The absence of a consistent analytical base and meaningful quantifications and national comparators are key stumbling blocks to be aware of. Evaluating outcome may also be difficult, as this requires judgement on whether the results of an intervention were desirable. This, however, does not mean that it should not be considered, if the audit approach is assessed to be realistic and obtaining the evidence is feasible.

Auditing the auditee’s assessment and measurement of EAV

Besides examining EAV directly, performance auditors can also play a valuable role by examining the performance management system used by auditees for measuring and assessing EAV. For example, auditors could look at the design of the performance management systems used to assess EAV. Auditors can also examine the quality of the indicators and measures developed by auditees to measure and report on the added value of EU intervention. This would apply in particular in those cases when there is a strong performance management system at EU level and in Member States. In parallel, auditors can assess whether there are appropriate controls for collecting, validating, analysing and reporting on the achievement of EAV.

There are various benefits of such a focus, including using the audit results to:

  • promote and contribute to accountability and transparency;
  • improve policies and policy-making;
  • help decision-makers take informed decisions on resource allocation;
  • provide insights for the (re)design and implementation of appropriate systems, programmes and instruments; and
  • serve as a basis for subsequent follow-up or related audits.

Auditors could also conduct deeper evaluations of the relevance or reliability (or both) of specific performance data used for assessing EAV (or their limitations) in ex ante and retrospective evaluations of EU actions, or how these are used by the auditee (for example, as a management tool or for communicating and reporting to stakeholders). The deeper or more targeted the audit work is, the more valuable the analysis and audit conclusions can be.

The need to intensify dialogue on the measurement and assessment of EAV

The concept of EAV has been a dominant theme for many years, featuring frequently and prominently in several political debates and discussions on EU interventions and budget allocation. It is a concept that needs to be better defined and understood.

The assessment of EAV is central to the design of any EU policy or intervention. It is mandatory in the Commission’s ‘Better Regulation’ framework for any proposals presented by the Commission to revise or launch EU action. The legislator also puts considerable emphasis on the significance of EAV in the review of EU policy objectives, interventions and spending. The EU’s Financial Regulation requires that information on EAV is included in the Commission’s annual proposal for the EU’s budget, in all ex ante and retrospective evaluations, and in the general assessment prepared annually by EU institutions on the preceding year.

The obligation of auditees to systematically evaluate and report on the benefits of EAV should make our audit work easier and an assessment of performance against EAV objectives and criteria easier to carry out. However, sufficient information and analysis, at different levels, on the impact of EU regulations or programmes, even without considering the particular effects of EU interventions, is often not readily available, neither directly or through the auditee’s assessment of EAV in its performance measurement system. It is therefore all the more necessary for EU policymakers, the executive, auditors and other stakeholders to intensify their dialogue on how EU programmes and regulations should be designed to truly enable EAV to be defined, measured, assessed, and concluded upon.

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.

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