THE AUDIT OF PUBLIC REVENUE
Audit of public revenues:
audit approaches and audit impact
Synthesis
The European Court of Auditors
Importance of audit of public revenues
The budget
of the European Union (EU) is almost wholly financed from the Communities
"own resources". Other revenue
includes tax and social contributions.
Own
resources are of two kinds:
-
traditional own resources (indirect
taxes consisting of customs and agricultural duties and sugar levies);
-
revenue obtained from the Member States as national
contributions (VAT own resources, and the resources based on Gross National
Income (GNI)).
Audit environment
The EU
is a community of law operating through common institutions and the national
administrations of the Member States.
Legislation
governing the customs union is made by the EU,
and implemented by the Member States under national legal and regulatory
provisions. In practice the bulk of
traditional own resources are collected by the customs authorities of Member
States. The resources to be made
available to the EU based on VAT and on GNI are calculated by the Commission by
applying rates prescribed by the regulations to statistical data and data
concerning the collection of VAT provided by the Member States.
The
European Court of Auditors (ECA) carries out audits of all the Commission
services concerned, of the relevant activities of the Member States' tax
authorities, and of the systems in Member States that produce the underlying
data for the VAT and GNI-based resources.
ECA audit work in Member States is always carried out in liaison with
national audit bodies.
Audit objectives, types and scope of audit
The
goals of the ECA's audit are set by Article 248 of the Treaty establishing the
European Community. The Court must:
- examine the accounts of all
revenue and expenditure of the EU;
- examine the legality and regularity
of all revenue and expenditure transactions, and whether financial management
has been sound.
The
Court carries out both an annual certification audit of own resources, and
audits of selected subjects. The ECA is
empowered to audit on the premises of any body in the Member States which
manages revenue or expenditure on behalf of the Community.
Audit approach (methodology)
Planning:
The
ECA prepares a multi-annual plan covering three years and a detailed annual
work programme. The planning process
distinguishes the obligatory statement of assurance audit from audits of
selected topics. The planning regularly
assigns time to follow-up of previous audits, and to "horizontal"
audits (coordinated work on subjects relevant to several different audit
areas).
Tools
and methodology:
Traditional
own resources are collected by Member States, mainly by customs
authorities. The ECA approach to
auditing them is systems-based:
- Use
of questionnaires as a basis for
reviewing the audited customs authority's general procedures for ensuring that
all EU revenue due is identified;
- All
audits include substantive tests of
selected customs entries or data underlying VAT and GNI related resources.
Sampling methods are adapted to the audit objectives;
- Analytical review of the revenue flow is
an important part of financial audits;
The
widespread use of information technology (IT) by customs authorities means that
most audits of import duties need to consider both the general controls at IT
installations and controls over IT applications.
VAT
and GNI own resources reflect macroeconomic statistics and VAT and GNI audits
focus on the Commission`s system for handling the statistics received from the
Member States with the possibility to check data and statistics at Member State
level. The following procedures or
aspects constitute focal points for the Court's VAT and GNI audits:
- The
annual VAT statements, which provide the VAT base for the calculation of own
resources and which are prepared by Member States and submitted to the
Commission;
- The
administrative cooperation between Member States in VAT matters;
- The
description by Member States of the sources and methods used for the
compilation of National Accounts in accordance with ESA95 and their
application;
- The
compilation process of National Accounts underlying the GNI aggregate and its
quality.
Enquiries
are always made about the work of other
auditors and of other inspection services.
Frequent contacts are maintained with the Commission units responsible
for the inspection of all types of own resources. Reports of the inspections, together with the
supporting working papers, are available to the ECA and are regularly used to
support and supplement its results.
Besides
the software used for reading and analysing data provided by audited bodies,
the ECA uses an IT system known as ASSYST (Audit Support System) for the audit
working papers. ECA auditors have access
to the Commission's accounting system in order to carry out financial audit
work.
Audit impact
The
Court provides its statement of assurance on the EU accounts to the European
Parliament and the Council. It produces
an annual report after the close of each financial year as well as the replies by
the other institutions to the Court's observations. Own resources are covered
by the statement of assurance.
Follow-up
of previous years' audit results is done systematically and the major points
are referred to in the Court's annual report.
To carry out follow-up, the ECA's auditors maintain regular contacts
with the Commission services concerned, and with the audited bodies in the own
resources area.
The
main findings reported in recent years have been persistent problems with the
reliability of the accounts of import duties established but not yet made
available to the Commission, and control weaknesses related to specific aspects
of customs supervision. A number of
specific weaknesses in customs supervision have been corrected.
The
action taken in response to ECA observations is verified on subsequent audit
visits. The Commission inspection
service also systematically follows up the action taken following observations
by the ECA. The Court delivers opinions
on proposed changes to the EU own resources legislation.
