Committee on Budgetary Control

Committee on Budgetary control

Directorate-General for Internal Policies of the Union
Directorate for Budgetary Affairs

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B-1047 Brussels - Fax 0032 2 28 44907

F-67070 Strasbourg - Fax 0033 3 88 1 79976

Table of Contents

Handbook 2009 - DV\785742EN.doc
Committee on Budgetary Control (C) Copyright (June 2009) All Rights Reserved

Introduction to the Committee's tasks, procedures and working methods

The Committee's Powers and Responsibilities

This chapter briefly outlines the committee's powers and responsibilities according to the new Rules of Procedure in force from July 2009.

Annex VII ofParliament's Rules of Procedure lays down the following powers for the committee (comments are added in italics):

The control of the implementation of the budget of the Union and of the European Development Fund, and the decisions on discharge to be taken by Parliament, including the internal discharge procedure and all other measures accompanying or implementing such decisions;

This task constitutes the bulk of the committee's work centred on the committee's recommendation to the plenary regarding the decision to grant, postpone or to refuse discharge.The discharge procedure first and foremost concerns the Commission, which is responsible for implementing the EU Budget. It equally concerns the Parliament, other Institutions (Council, Court of Auditors and Court of Justice, among others), the Agencies and the European Development Fund. The Commissioners responsible for different policy areas and the representatives of other Institutions and the Agencies may be invited to give a statement before the committee and to answer questions regarding the implementation of the budget.

The closure, presenting and auditing of the accounts and balance sheets of the Union, its Institutions and any bodies financed by it, including the establishment of appropriations to be carried over and the settling of balances;

The discharge procedure incorporates a formal closure of accounts for the budgetary year in question.

The control of the financial activities of the European Investment Bank;

The Bank's annual report is examined by Parliament.

Monitoring the cost-effectiveness of the various forms of Community financing in the implementation of the Union's policies;

On the basis of mainly special reports from the European Court of Auditors, the committee examines whether sound financial management has been achieved. The annual report of the European Court of Auditors deals mainly with the "DAS" (Statement of Assurance) which concerns the regularity and legality of transactions, whereas the special reports deal mainly with sound financial management.

Consideration of fraud and irregularities in the implementation of the budget of the Union, measures aiming at preventing and prosecuting such cases, and the protection of the Union's financial interests in general;

The committee meets (in camera, where necessary) for exchanges of views with the Director of OLAF and its Supervisory Committee. The committee is the lead committee to be consulted in case of a modification of the legislation in force governing the activities of OLAF. In addition, any other subject dealing with the protection of the Union's financial interests, like the European Public Prosecutor or the Commission's annual reports on the fight against fraud, falls within the committee's competences.

Relations with the EuropeanCourt of Auditors, the appointment of its Members and consideration of its reports;

The committee organises hearings of the candidates for membership of the European Court of Auditors and gives an opinion for or against the appointment of a candidate - in the form of a recommendation to the plenary. The President and Members of the European Court of Auditors frequently attend committee meetings in order to present the annual working programme, the annual report or special reports.

The Financial Regulation[2] as far as the implementation, management and control of the budget are concerned.

The committeeis consulted on modifications of the Financial Regulation and implementing rules. It invites the Commissioners responsible for budget and budgetary control to its committee meetings at regular intervals.

Handbook 2009 - DV\785742EN.doc
Committee on Budgetary Control (C) Copyright (June 2009) All Rights Reserved

The following flow-chart gives a general overview:

Handbook 2009 - DV\785742EN.doc
Committee on Budgetary Control (C) Copyright (June 2009) All Rights Reserved

The Discharge

The concept

Article 276 of the Treaty provides that "the European Parliament, acting on a recommendation from the Council which shall act by a qualified majority, shall give discharge to the Commission in respect of the implementation of the budget.....".

In other words, discharge is a Parliament decision that reflects its conclusions at the end of a process, the discharge procedure, on the way the Commission has carried out its task of implementing the expenditure authorised in the budget of the financial year n. Parliament's decision on this issue is taken every year (in principle,in April, although the Financial Regulation now specifies that discharge should be given "before 15 May").

This process of parliamentary scrutiny of the Commission's implementation of the budget appropriations - the taxpayer's money- is aimed at ensuring that they were used in accordance with the principle of sound financial management, namely in

accordance with the principles of "economy", "efficiency" and "effectiveness"[3]:

"Efficiency" means the best relationship between resources employed and results achieved,

"Effectiveness" (or cost-effectiveness) is concerned with attaining the specific objectives set and achieving the intended results and

"Economy" means that the resources used by an Institution were made available in a timely fashion, in appropriate quantity and quality and at the best price.

When taking its decision on discharge Parliament accompanies it by a resolution which contains its comments in respect of the implementation of the budget. These comments may require changes to the procedures and practice of the Commission or seek improvements in the way it administers Union policies.

In the course of the discharge procedure Parliament may ask the Commission to provide explanations with regard to the implementation of expenditure or to defend itself against charges of mismanagement and fraud. In so doing the Committee on Budgetary Control and ultimately the Parliament are performing a work ofpolitical appraisal.

The Committee is thus providing added value in exercising parliamentary control aimed at ensuring that problems flagged in audits by the European Court of Auditors and/or in investigations by the Anti-Fraud Office (OLAF) are given political prominence, are followed-up and lead to improvements in the system.

The basic legal provisions

According to the provisions of the Nice Treaty, which entered into force in February 2003[4], the Commission shall implement the budget under its own responsibility and within the limits of the appropriations, having regard to the principles of sound financial management (Article 274).

The Commission shall submit annually to the Council and to the European Parliament the accounts of the preceding financial year relating to the implementation of the budget. The Commission shall also forward to them a financial statement of the assets and liabilities of the Community (Article 275).

Finally, 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. To this end, the Council and the European Parliament in turn shall examine:

the accounts and the financial statement referred to in Article 275,

the annual report by the European Court of Auditors together with the replies of the Institutions under audit to the observations of the European Court of Auditors,

the statement of assurance and

any relevant special reports by the Court.

Before giving a discharge to the Commission, or for any other purpose in connection with the exercise of its powers over the implementation of the budget, Parliament may ask to hear the Commission with regard to the execution of expenditure or the operation of financial control systems. The Commission is required to submit any necessary information to Parliament at the latter's request (Article 276(2)).

The Commission shall take all appropriate steps to act on the observations in the decisions giving discharge and on other observations by Parliament relating to the execution of expenditure. At the request of Parliament or the Council, the Commission shall report on the measures taken in the light of these observations and comments and in particular on the instructions given to the departments which are responsible for the implementation of the budget. These reports shall also be forwarded to the European Court of Auditors (Article 276).

As far as the time-frame is concerned and given that the annual report of the European Court of Auditors is the main tool used in the discharge procedure, the Financial Regulation lays down that:

the European Court of Auditors shall transmit to the authorities responsible for giving discharge, by 15 November at the latest, its annual report accompanied by the replies of the Institutions (Article 143) and

Parliament, on a recommendation from the Council, shall, before 15 May of year n + 2 give a discharge to the Commission in respect of the implementation of the budget for year n, which is the financial year under consideration (Article 145).

In practical terms, this means that the bulk of the committee's discharge work isconcentrated in the six months between these two dates.

The scope and content of the discharge procedure

According to the detailed provisions set out in Annex VIof the Rules of Procedure[5], the committee may invite Parliament to grant, postpone or refuse discharge in respect of implementation of the budget. In this way MEPs can express their approval or disapproval of the way EU funds have been spent. The Commission must act upon any comments or recommendations in Parliament's resolution.

By granting a discharge through a resolution voted in April (or at the latest by 15 May), Parliament approves the implementation of the budget in respect of the financial year under examination.

If Parliament concludes that there are serious issues to be addressed, it will postpone the granting of discharge. The Commission then has to take swift action to remedy the problems.

Parliament then draws up a second report recommending either granting or refusing discharge, for debate at the October part-session.

The refusal to grant discharge has no legal consequences but may be regarded as a serious political sanction. This has happened twice in the last twenty-five year period. The first time was in 1984 and the most recent instance was in December 1998, regarding the implementation of the 1996 budget, resulting in the setting up of the Committee of Independent Experts mandated to investigate charges of serious mismanagement levelled against the Commission. Following the publication of its findings, the Santer Commission resigned on 15 March 1999.

It should be stressed, however, that Parliament's decision not to give discharge to the Commission over the implementation of the budget for a particular financial year does not in itself constitute a motion of censure on the Commission. Indeed, while a decision by Parliament not to give discharge may have very serious political and institutional consequences, as was shown in 1998, it must nevertheless be distinguished from the motion of censure for which the Treaty requires a separate procedure[6] as well as a higher majority.

The discharge decision regarding the general budget managed by the Commission concerns by far the biggest share of the EU budget. However, direct management by the Commission itself applies only to a limited part of the budget, as some 80-85% of EU funds are managed and monitored primarily by national and local administrations in the Member States (the "shared management" system).

In addition to scrutinising the implementation by the Commission of the EU's general budget, the Committee on Budgetary Control makes an assessment of:

the financial management of other EU Institutions, such as the Council, the Court of Auditors, the Court of Justice, the Committee of the Regions, the Economic and Social Committee, the European Ombudsman, the European Data Protection Supervisor, and the European Parliament itself,

the financial management of the Agencies which receive grants charged to the budget (such as the Agency for Safety and Health at Work, the Environment Agency, the Translation Centre, the Monitoring Centre for Drugs and Drug Addiction, etc. as well as - in future - joint undertakings) and

finally, the budgetary management of the European Development Fund, which for the time being falls outside the Community budget.

CONT's working methods

Like other committees, the Committee on Budgetary Control, through its political groups' coordinators, appoints "rapporteurs" to prepare the draft report or opinion which will form the basis of deliberations in committee.

In view of the complexity of EU budgetary matters, individual members of the committee during the last parliamentary term specialised in particular EU policy areason the basis of an allocation of specific sectors to the political groups. As members responsible for a particular subject matter or policy area they prepared Parliament's response to special reports by the Court of Auditors in their field, often in the form of working documents. These were discussed and frequently used, subsequently, for the guidance of the rapporteur, the Member with the overall responsibility for drawing up the draft report on the discharge for a particular section of the budget.

The Committee is assisted in its work by its secretariat and in addition by a policy department, the Policy Department on Budgetary Affairs which undertakes research and supplies studies on budgetary and control matters.

As explained above, the most important instrument on which CONT's (and Parliament's) assessment is based is the work of the European Court of Auditors. The Court, based in Luxembourg, conducts independent audits of the collection and spending of EU funds. It assesses the way in which the Institutions and agencies of the Union carry out their tasks and examines whether financial operations have been properly recorded, legally and regularly executed and managed.

While the Treaty provisions indicate the main documents to be used for the discharge procedure, essentially the documents from the European Court of Auditors (annual report and special reports), other budgetary documents, can also prove to be useful and interesting during the exercise. Indeed, since the reform of the Commission, the volume of information -even if available sometimes only in the original language- that the Commission delivers (by May-June each year and concerning the previous financial year or year n) has increased dramatically and now comprises:

the financial report[7] for year n: this is a very general document but constitutes a good introduction to financial matters since it provides a broad overview,

the annual accounts with the Commission's report on budgetary and financial management, the latter being a commentary which contains a presentation of each financial perspective heading,
the annual evaluation review, which aims to provide for year n information on the Commission's evaluation activities by policy area and
the activity statements which accompany the preliminary draft general budget for the year n+2 alsocontain some information that could be relevant for the discharge,
the most relevant Commission documents: the synthesis reportand the individual Commission Directorates-General (DG's) activity reports. The synthesis report's main purpose is to give a global picture of the internal management issues raised in the DGs' reports and to draw conclusions on how to tackle the difficulties encountered. It is based on theannual activity reports of the different DGs in the Commission, which contain the declarations and reservations of the Directors-General.

As far as the timetable for the discharge procedure is concerned, the following flow-chart sets out the main stages:

Guidelines for dealing with sensitive or confidential matters in CONT's work

Examination of confidential documents

For the examination of confidential documents the committee has two distinct procedures at its disposal:

-Annex 1 to the Framework Agreement[8] between Commission and Parliament, and

-Annex VIII to the Rules of Procedure[9]

Annex 1 to the Framework Agreement governs the forwarding by the Commission to Parliament of confidential information in connection with the discharge procedure and Parliament's powers of scrutiny. The confidential information is supplied in accordance with one of the five options set out in paragraph 3.2 of this annex, e.g. access restricted to chairman and discharge rapporteur.

The Framework Agreement requires Parliament to put in place a secure archive system for documents classified as confidential and a secure reading room in which they can be consulted in accordance with the terms governing their transmission.

Annex VIII to the Rules of Procedure (Section A) applies to confidential documents within the meaning of Article 4 of Regulation No. 1049/2001[10] and is therefore wider in its scope than the Framework Agreement. Annex VII provides for the discussion of such documents in an in camera meeting, i.e. a meeting which may be attended only by Members of the committee and by officials and experts whose presence is strictly necessary.

Under this procedure the confidential documents are numbered, distributed at the beginning of the meeting and collected again at the end. No notes or copies may be taken and the minutes of the meeting may make no mention of the discussion of the item taken under the confidential procedure. Annex VIII lays down penalties for breaches of confidentiality.

OLAF, when forwarding confidential documents, has in the past insisted on the application of the Annex VIII procedure.

The handling of confidential and sensitive matters is, moreover, subject to conditions laid down in EU legal provisions, Parliament's Rules of Procedure or in the case-law of the Court of Justice and the Court of First Instance, as underlined several times in the oral and written advice of Parliament's Legal Service on the practical implementation of these rules.