Special Report: Audit of the clearance of accounts procedure

The European Court of Auditors has assessed the clearance of accounts procedure to determine whether it met the objectives set and allowed the European Commission and other stakeholders to gain the necessary information as to the accuracy of the accounts and the legality and regularity of the agricultural payments.
The management of agricultural expenditure is, in the main, shared between the Member States and the Commission: aid to farmers is paid by the designated national authorities, the so-called paying agencies, who are then reimbursed by the Commission. The final recognition of expenditure by the Commission is determined through a procedure called the clearance of accounts. This procedure has evolved, after its reform in 1996, from an original single clearance decision relating to a particular financial year to the current two-stage procedure.
Firstly the accounts of paying agencies are checked for accuracy by certification bodies in the Member States and are then subjected to an annual financial clearance decision by the Commission. The financial clearance procedure covers primarily the reliability (i.e. their completeness, accuracy and veracity) of the paying agencies’ accounts.
Regarding this first stage, the Court found that, overall, the procedure provided the Commission with sufficient information to take its annual financial decision. However, recent changes have expanded the scope of the work of the certification bodies beyond an audit of reliability to include elements of legality and regularity of payments. The Court concluded that the use of such elements for assurance purposes has, as yet, proved to be limited. Certification bodies and directors of the paying agencies were not always clear what was expected of them. This was against a background of annual changes to the guidelines and requirements.
The second stage, the conformity clearance procedure, covers the legality and regularity of the underlying payments. The Commission itself carries out this procedure through audits designed to identify and exclude (in later years) payments not complying with the rules.
The Court found that between 1999 and the end of 2008 the Commission recovered 5.582 Million euro from the Member States through its conformity clearance procedure. However, significant shortcomings still affect the implementation of the conformity clearance procedure and adversely impact on the achievement of its objective to exclude irregular payments.
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The Court observed that the bulk of financial corrections (by value) are flat-rate corrections. The difficulty with this type of correction is that they do not provide an adequate basis to determine accurately the total amount of irregular payments that are due to weaknesses found in the systems. Thus, the conformity decisions are not related directly to irregular payments made to beneficiaries and do not therefore directly exclude this irregular expenditure from Community financing. In fact, the cost of the financial corrections included in these decisions is borne by the Member States rather than by the beneficiaries of the aid that is irregularly paid. Financial corrections are not charged to the farmers and traders who obtained irregular payments, but rather in the main to the national taxpayers.
Overall, the Court observed that the conformity clearance procedure is too long. At the end of 2008, the clearance of accounts was not complete for any year later than 2001. Furthermore, at the end of the procedure, the Commission does not formally recognise, at a given point in time, the expenditure chargeable to a particular budgetary year, as stipulated in the Financial Regulation. In the absence of such a legality and regularity decision, the expenditure for the year in question cannot be considered as being fully cleared at the time of the discharge.
In order to better comply with the overall objective of the procedure and more fully meet the needs and expectations of the various stakeholders, the Court recommends a comprehensive review and subsequent reform of the clearance of accounts procedure.